What Is a Small Business Loan Request Letter?

A small business loan request letter is a letter to a bank that supports your business loan application. It should include the amount of money you want to borrow and explain why you merit the loan, how you expect to use the loan, and how you plan to pay the bank back.

If you’ve applied for a small business loan at a bank, you’re probably familiar with the need for a business loan request letter. You can think of this letter, which accompanies your loan application, as part resume, part cover letter. It contains important information about your business’s history and financial status, and gives you an opportunity to convince the bank to loan you money.

It might seem impossible to condense your business down to one page for a total stranger who’s never met you. We understand the feeling, but knowing how to write a business loan request letter in an effective way can help you meet the challenge. Remember—this letter might be one of your only opportunities to personally convey to your lender why they should approve your application.

We’ll make the steps for writing a business loan request letter as simple as possible. Here’s what lenders want to see, what this letter is for, what to include, and the format to follow for best results.

Each of these lenders need similar information, and we’ll get to that in a bit. But first, let’s look at a few small differences between these two business loan request letter types.

Business Loan Request Letter for a Traditional Bank Term Loan

It shouldn’t come as a surprise that banks are more likely to lend money to businesses that appear to be growing and could possibly turn into long-term customers. Unfortunately, the good majority of small business owners find that traditional bank loan requirements are so strict that qualifying is difficult. But if your personal credit score is excellent, this might be an option you want to explore.

Before committing to such a long-term borrowing relationship, however, your bank lender will want to learn everything they can about you and your business in order to make sure you are a safe credit risk.

That’s why during the small business loan underwriting process, the bank’s underwriter will look to your business loan request letter as a direct appeal in your own words for the funding your business needs. This is your opportunity to tell the lender why you need the loan and show evidence that you’ll be able to repay the loan.

Business Loan Request Letter for an SBA Loan

The SBA loan application process is complicated as is. SBA loans are backed by the federal government, so in addition to your lender’s requirements, you also have to comply with any SBA rules. Most lenders will ask you to submit a loan request letter before committing to providing your business an SBA loan.

When you write a loan request letter for an SBA loan, be prepared to share financial details about yourself and any business partners, in addition to specific information about your business’s finances and credit history.

SBA-backed lenders will need to know how much of your own money you have invested in the business. Your business loan request letter should also clearly indicate your company’s industry. This is because the SBA doesn’t fund businesses that lend money or speculate, nor do they fund passive investments, pyramid sales, or gambling of any sort.

With respect to describing your partners and management team, be sure to elaborate on the “good character” of these individuals within your business loan request letter. Also, you should indicate whether or not you and your leadership team have previous management or industry experience that directly applies to your current business.

What to Include in Your Small Business Loan Request Letter

The business loan request letter is a tool banks use to pre-judge you and your creditworthiness, often before they ever have a conversation with you directly. That’s why it’s important to pay attention to what you say in the letter and how you say it.

Your letter should be short—ideally just one page—but full of pertinent information about your business.

Let’s walk through the three pieces of information every business loan request letter should include:

1. Basic Business Information

The first sentence of your letter should express your request for the loan and the amount you want to borrow.

Next, use a few short and concise sentences to provide a basic overview of your business. In this section, be sure to include:

Business’s legal name and any DBA that your business uses

Business entity structure (S-corporation, partnership, LLC, etc.)

Brief description of what your business does

How long you’ve been in operation

Current number of employees

Current annual revenue (and profits, if you’re profitable)

Once these business basics are covered, you’ll be ready to move on to the meat of your business loan request letter—describing the purpose of the business loan you’re requesting and how you plan to recuperate the investment.

2. Purpose of the Business Loan

With the business basics covered, you’re ready to explain clearly and succinctly exactly how you plan to use your business loan funds. And, of course, explain why this use of funds will be a wise business investment.

Be as specific as possible, showing the lender that you’ve carefully considered what taking on this new debt will accomplish. For example, don’t just say that you plan to use the loan for working capital. Say that you plan to increase inventory by 150% or hire three new hires who will increase revenues by $1 million.

Remember, your lender’s number one priority when considering any loan application is to determine the likelihood that you will repay the loan on time and in full. A lender’s goal is always to minimize their risk! As such, be sure to mention exactly how the loan will help generate the necessary additional income to cover repayment plus interest.

3. Evidence That You’ll Be Able to Repay the Loan

Once you describe how you plan to use the loan funds requested, you’ll get to the part in your business loan request letter where you need to demonstrate that you can pay back the loan. Of course, the rest of your loan application will contain detailed information about your business financials and help to prove that. But here, you want to highlight any specific business financials to support your claim that funding your loan will be a low-risk decision for your lender.

Use figures from your most recentbalance sheet or income statement as evidence to indicate the current financial health of your business. If you have other business debts, make sure to mention that and include a business debt schedule. If you’re profitable, make sure to highlight that because it’s something that many lenders look for in successful applicants.

From there, consider highlighting specific cash flow projections to show the lender how you plan to fit repayment of the requested principal and interest into your budget.

Small Business Loan Request Letter Sample

Now that you know exactly how to write a business loan request letter, you’re ready to input information about your own business format that will match your lender’s expectations.

To simplify this process, think about following this free business loan request letter sample as a guide. Of course, you’ll need to edit and adapt this template to match the specifics of your business and the loan you intend to pursue. The format of a business loan request letter will typically be on printed 8.5 x 11 inch paper. The exception is if your SBA lender supports online applications, in which case you can submit your letter online.

Applicant’s NameApplicant’s AddressCity, State, Zip Code[DATE]Lender’s NameTitleLender’s InstitutionLender’s Institution AddressCity, State, Zip CodeRe: Small business loan request for [AMOUNT]Dear [LENDER’S NAME],The aim of this letter is to request a small business loan in the amount of [NUMBER] for the purpose of [ADD PURPOSE OF LOAN HERE]. My business, [BUSINESS NAME], is a successful and well-established company, which is part of the [TYPE] industry.

[BUSINESS NAME] began operation in [DATE] with [NUMBER] employees, and has shown consistent growth over the past [NUMBER] years. The business now employs [NUMBER] individuals. Our business is structured as a [BUSINESS ENTITY TYPE].

We have an established online presence, as you can see on our website [LIST WEBSITE], Facebook, Yelp, [LIST URL OF ANY OTHER SOCIAL MEDIA]. Through these methods, as well as [LIST ANY OTHER MARKETING AVENUES], we continue to make industry contacts and cultivate new business.

Last year, our annual sales revenue was [NUMBER] with a net profit of [NUMBER, IF PROFITABLE]. We have maintained a consistent cash flow over the past [NUMBER] years, and have operated with an annual net profit each year since opening.

[EXPLAIN SPECIFIC REASON FOR LOAN REQUEST HERE] EXAMPLE: We have completed preliminary market research in [LOCATION OR TYPE OF EXPANSION], and we have seen increased demand for [PRODUCT OR SERVICE YOUR BUSINESS PROVIDES]. Therefore, we are seeking funding to grow the business by [SUMMARIZE BUSINESS GROWTH PLAN].

This business growth opportunity is immediate but will require more funding up front than our cash flow can currently accommodate. Although making the monthly repayments with interest over time will fit easily into our budget, we do not currently have access to a lump sum large enough to make the initial purchase. This loan in the amount of [NUMBER] will enable us to purchase [WHAT YOU NEED] immediately so that we can begin to generate business for loan repayment immediately as well.

Attached, please find our business plan, our most recent cash flow statement, and our annual profit and loss statement for your review. Based on these strong financial documents and our equally strong credit score of [NUMBER], we feel that [YOUR BUSINESS NAME] will be a safe credit risk for your bank.

Please take a moment to review this request letter and the accompanying financial documents. If you feel that you can help our company, we would love to hear from you.Sincerely,Applicant’s SignatureApplicant’s Name Printed

List of Enclosures: Business plan, cash flow statement, and P&L statement (plus, any other documents that are part of the loan application)

Business Funding That Doesn’t Require a Request Letter

Now that you know about how to write a business loan request letter, you might find yourself wishing for a less-complex avenue for obtaining small business funding. Fortunately, there are a number of speedier business loan products that might work for you. The options listed below don’t require a request letter—just a quick online business loan application.

Term Loans from Alternative Lenders

Term loans are a traditional loan product that most people are familiar with. What some business owners don’t know is that they’re available at places other than your local bank. Many alternative lenders in the online funding marketplace offer term loans with excellent repayment terms for small businesses.

Online lenders are often way easier to qualify for than bank loans. To apply, you usually only need to show some recent business bank statements, along with business and personal tax returns. And when working with an online alternative lender, the application and approval process for most term loans can be completed in two to five business days.

After approval from a lender, you’ll receive a lump sum of cash up front. Your lender will give you terms for a predetermined repayment scheduled for your loan amount, or principal, along with interest and fees at regular intervals.

With alternative lenders, most term loans have a repayment period of one to five years. Term loans from alternative lenders usually come with either fixed interest rates that are determined by several factors—size of the loan, credit history, repayment term, or purpose of the loan, just to name a few.

Small businesses and younger companies find term loans advantageous because they come with predictable payment amounts so they can be easily worked into the business’s ongoing cash flow.

Equipment Financing

Equipment financing is the perfect option if you need to buy or lease equipment. Lenders can be comfortable with more risk with this type of loan. That’s because the collateral is built right into the loan. If you default, the lender can repossess the equipment.

The lender or vendor fronts you the cash to make the purchase, and you make regular payments for a specified period of time. The term is usually determined based on the expected life of the equipment. Depending on the structure of your equipment loan or lease, you’ll either own the equipment outright at the end of the term or have the option to renew your lease or upgrade the equipment.

These loans can also happen pretty quickly—in as few as a couple of days if you have everything in order! You typically just need to show an invoice or purchase order for the equipment and some business bank statements.

Business Line of Credit

If you find that a business term loan requires too much paperwork, try for a business line of credit instead. A business line of credit works similarly to a credit card. Instead of giving you an entire lump sum of cash at once, a business line of credit gives you access up to a certain amount of money. You can draw on that credit line as often as needed, and you only pay interest on money that you use. Lines of credit are useful for recurring expenses, like payroll, and unexpected costs.

Fortunately, applying for a business line of credit can be a bit easier than applying for a term loan. A variety of lenders, both banks and alternative lenders, offer lines of credit to small businesses.

Banks usually request personal and business tax returns, bank account statements, and business financial statements, such as profit-and-loss statement and balance sheet. If the line of credit is for a relatively small amount of money, they might not need to see a formal funding request letter. Alternative lenders usually just need to see business bank statements to qualify an applicant for a business line of credit.

What to Know About How to Write a Business Loan Request Letter

The most important takeaways with a business loan request letter are to be precise and concise. Your letter is important because it makes a first impression on the lender who will be funding your loan.

Make sure you include the following in your business loan request letter:

Business name

Business structure (S-corporation, partnership, LLC, etc.)

Brief description of what your business does

How long you’ve been in operation

Current number of employees

Info on any partners, if applicable

Current annual revenue

The purpose of your loan

Any vendors you’ll be purchasing from if applicable

Evidence you’ll be able to repay the loan and principal, supported by historical financial figures and projections

There are plenty of traditional term loans and other small business loan options that don’t require a business loan request letter, too—so don’t be discouraged if this sounds like a bit more than you have the time for right now. It’s a good idea to explore your business loan options based on how quickly you need the money and how you’re planning to use the funds.

]]>Fiscal Year: Definition, Examples, How to Determine One for Your Businesshttps://www.fundera.com/blog/fiscal-year/
Wed, 20 Mar 2019 15:37:15 +0000https://www.fundera.com/blog/?p=51586Ever heard your business accountant reference a “fiscal year?” Not sure about the fiscal year definition, or how it applies […]

]]>Ever heard your business accountant reference a “fiscal year?” Not sure about the fiscal year definition, or how it applies to your business? You’re in the right place. The accounting term fiscal year gets tossed around in business and applies to your business, no matter how big or small it is.

That’s for good reason—your fiscal year marks the beginning of your annual financial records. It’s a stake in the ground that demarcates when your company’s year begins, and it doesn’t just have to be when the ball drops on New Year’s Eve.

Even if you don’t do your own books, or are really hands off with your finances, you’ll want to know the definition of a fiscal year. Choosing the right time to start your fiscal year can have a big impact on how you account for your company’s finances, and how you track its overall fiscal health. We’ll review fiscal year vs. calendar year, how a fiscal year is important for your business, and what you need to know about finding the right fiscal year for your business.

What Is a Fiscal Year?

A fiscal year (FY) is a 12-month period over which you track and report your finances. In this sense, a fiscal year is pretty straightforward—you want to track a year of your company’s financial progress over the same amount of time as a regular year. What makes a fiscal year unique, though, is that it doesn’t necessarily start at January 1 and end on December 31. Instead, businesses can begin their fiscal year at other times throughout the year.

This may sound paradoxical—after all, why have a different fiscal year that a calendar year? But there are reasons for determining your fiscal year at a different point than the first day in January. Fiscal years are set up for optimal tracking for a business owner, which means that you set them up to line up with high-revenue periods throughout the year, or to start off your financial year on a high note. To make things even more customized (or complex, depending on your perspective), you can start your fiscal year during whatever period you’d like (although most business owners opt to start their fiscal year at the beginning of specific quarters).

To make matters a bit more complicated, it’s important to know that when people talk about fiscal years, they typically do so in the context of the fiscal year end, rather than the beginning. So, for example, if your fiscal year begins on July 1, then you’d talk about the “fiscal year ending June 30.” This means that your quarters will adjust as well. The first quarter of the calendar year may then be the third or fourth quarter of your fiscal year dated the year prior.

Sound a little weird, maybe? That’s understandable. But, if you’re willing to look dive into the details of a fiscal year, how the fiscal year differs from the calendar year, and how a fiscal year ending date impacts your business, you may come away wanting to figure out when to begin and end your fiscal year.

Fiscal Year vs. Calendar Year: How They Differ

Now that we’ve laid the ground rules for what a fiscal year is, what a fiscal year end signifies, and why it’s important for businesses, we can dive into the difference between a fiscal vs. calendar year. A fiscal year can begin with any quarter of the year. So, for example, your fiscal year might begin on April 1 and end March 31. This would mean that the difference between a fiscal year vs. a calendar year would be pretty significant for your business. This setup would be quite different than a calendar year, which is the standard January 1 to December 31 period within a year.

Both of these periods of time measure 12 consecutive months—the full year. But whereas a calendar year is inflexible (good luck getting people to celebrate New Year’s Eve on May 31), a fiscal year is customizable for your business needs. You may not be able to control time, but a fiscal year at least lets you decide when to measure it as it pertains to your business.

Why It’s Important to Understand Fiscal Years for Business

A fiscal year tells a story for your business—if you decide to set it up that way, that is. Different businesses in various industries have stories they want their finances to tell: They have high-revenue periods that help them get into the black, low points where financial performance is low, and other predictable patterns that may not tell the full tale of how well their business is doing.

The good news is that you don’t have to be stuck with the boundaries of the calendar year when trying to tell your company’s story. We’ll explain how to choose a fiscal year for your business in a little bit. First, however, you’ll want to understand how different fiscal year end periods affect you from a reporting standpoint, a tax standpoint, and in the broader financial picture for your business. Once you do, you can help build your business’s financial strategy that takes advantage of a fiscal year setup that’s right for you.

Fiscal Year and Your Financial Statements

When most people think about “end of year” periods, their minds likely turn toward January 1. This isn’t necessarily the case for fiscal years, however. Since fiscal years can end at any point throughout the calendar year, your company’s year-end statement may actually be in March or November, depending on the fiscal year you’ve established. After all, the end of a fiscal year is still year-end for you financially, even if no one else is popping champagne and counting down on the last day.

Depending on the fiscal year end that you choose, the dates that mark the beginning and end on your year-end financial statements that you put together will vary. You or your bookkeeper will still run yearly financial statements in the same way, but you’ll be reporting on dates that don’t begin and end as a regular calendar period. Otherwise, everything else should remain the same—you’ll just be treating your business’ year with a different start and end than you would for your personal life.

Luckily, professional bookkeepers and accountants are used to working with different fiscal years depending on what their clients choose. So, you don’t have to worry about your financial professionals keeping up!

Another potential bonus: If you use an accountant to wrap up your year and put together your financial statements, you may actually be able to save a little bit of money on your financial statement preparation if you use a fiscal year that’s different from the calendar year. Financial professionals have high seasons since they’re seasonal businesses too, so doing your year-end financial wrap could end up being more cost-efficient for you during the non-standard calendar year.

Fiscal Year and Taxes

For most business taxes, the IRS uses the calendar year. So, even if you have a different fiscal year during which you track your finances, the IRS will still look at your business taxes using the period between January 1 and December 31 (or, as they say, fiscal year ending December 31).

It’s likely that you have one of the slightly simpler types of business entities: a sole proprietorship, partnership, LLC, or even S-corp. These types of business entities file their taxes using the calendar year. (If you file quarterly estimated taxes, you’ll use the calendar-year quarters, too.) We mention business entity because C-corps have a slightly different allowance with regard to their tax years; they can file their taxes according to their fiscal year.

How to Determine the Fiscal Year for Your Business

Ready to determine your own fiscal year end? Awesome. Here are a few things to consider when picking your dates:

Are you a seasonal business? Do you have high seasons and low seasons?

Are your financial peaks and valleys tied to any holidays? Do you want to account for certain shopping seasons or days (such as the holidays or Valentine’s Day) during certain quarters?

Does your industry have any common fiscal years from which you can take a cue?

Fiscal Year Examples for Different Businesses

Almost every industry has peaks and valleys—landscaping companies aren’t booming with business during winter seasons, and retail businesses tend to do the bulk of their business around the holidays. As much as we’d all love to stay busy year-round, the fact of the matter is that business tends to be cyclical—or at least filled with discernible patterns every year. This is where setting your own fiscal year comes in handy, as it allows you to account for your cycles in a way that puts your best financial foot forward. Here are a few common examples of when different fiscal years might be useful for your business, depending on your industry.

Retail Fiscal Years: October-September

Retailers that experience highs during the holiday buying season benefit from ending their fiscal year at the end of September. This allows them to account for the peak holiday buying season within the entirety of their first quarter sales. If retail businesses kept their fiscal year in line with the calendar year, they’d have most of their holiday spending accounted for at the end of the year, which means that their books for the first three quarters of the year might look unimpressive (or, worse yet, in the red). This way, retailers can begin their year with holiday sales, and end them with back-to-school sales figures that make their financials look more balanced.

Lawn Care and Home Improvement: April-March

Unless your business serves a part of the country that’s gorgeous and sunny year-round, odds are that your outdoor-based business goes quiet during the winter months. Fewer people are taking care of their lawns, paying to have people manicure their backyards, or taking on large-scale renovation products when temperatures plunge and short days lead to cold nights.

If this is the case for you, consider using a fiscal year that ends in late winter and begins in early spring. Doing so will put your peak business months within the first two quarters of the year, rather than later on in the yearly cycle. This can help strengthen your financials when applying for loans or financing, as you’ll be able to lead with your best foot forward.

Gyms and Personal Training: November-October

Speaking of new years, there are few resolutions more common (or profitable) than those relating to getting in shape. If you own a gym, personal training service, or anything else related to getting fit, you might want to consider starting your year once the holiday season kicks off, and ending it when trick-or-treaters come home with pounds of candy in tow. This strategy can help you front-load your fiscal year with top-grossing months, as holiday revelers try to get in shape (or keep some of the holiday-related gluttony at bay).

Figuring out Your Fiscal Year

No matter when you decide to begin your fiscal year, there are advantages and disadvantages to picking any period on the calendar. For starters, you’ll have to make sure you’re comfortable choosing a fiscal year that might vary from the conventional calendar year. It might be tough to be in the fiscal fourth quarter of the year when you’re knee-deep into the new year. You’ll have to keep track of two different calendars in your business and personal life, and make sure you pay taxes on time. Uncle Sam doesn’t care when your year starts, so long as your taxes get paid on time.

Next, be certain to think about your fiscal year strategically. Plan your year to coincide with your busiest months if you want to make your financials sparkle in front of would-be investors and lenders. Try not to split high-profit quarters into two separate fiscal years, lest you run the risk of making your financials look less stellar than they really are.

So long as you keep these core concepts in mind, you can define your own fiscal year to maximize your business for growth, excellent recordkeeping, and the kind of accounting that helps you keep track of the core metrics you use to measure success.

Total Merchant Services Review

Total Merchant Services is a merchant services provider with a wide variety of offerings—from payment processing and point of sale to merchant cash advances and payment gateways. The company is a subsidiary of North American Bancard, a larger merchant services provider. Total Merchant Services doesn’t have the best reputation online, with users complaining about hidden fees, deceptive contracts, and lying salespeople.

As the name suggests, Total Merchant Services (TMS) is a merchant services provider with a wide variety of offerings. Founded in 1996, TMS says it has worked with over 500,000 small and medium-sized businesses and processes over $12 billion in annual credit and debit card transactions annually, making it one of the larger merchant services providers in the United States.

But does size translate to a quality service? That’s what we are going to find out in this review. Let’s take a look at all the services TMS offers to business owners and their pros and cons. We’ll also offer some alternative merchant services providers to compare to TMS so you understand exactly what the market looks like for your business.

What Is Total Merchant Services?

Total Merchant services is a merchant services provider, meaning it is the provider of a broad range of financial services related to credit and debit card transactions. Some of these services include payment processing, point of sale, and payment gateways. We’ll get more in depth on all of TMS’s capabilities in a moment.

First it’s important you understand how the company is structured, as this will impact your experience working with them. TMS is a subsidiary of North American Bancard (NAB), a larger merchant services provider (NAB says it processed $36 billion in credit and debit card payments in 2016) that owns other merchant services companies as well. What this means is that some of TMS’s services are offered through other NAB subsidiaries.

Working with third-party organizations is a recurring theme when you sign up for TMS. The company offers some of their POS hardware and marketing services through Groovv, a payment solutions service it acquired before being bought by NAB. Their payment gateway is also offered through Authorize.net. Only some of this information is explicitly stated on the TMS website, which can lead to confusion for customers.

It is very important to note that TMS uses independent sales agents to sell their products. These are individuals who sell products on behalf of TMS, but are not employed by the company (TMS calls them “sales partners”). Although there is nothing inherently wrong with using independent sales agents, according to Total Merchant Services reviews on Better Business Bureau, more than one former customer says they signed up for TMS through a sales partner, received no support after signing up, and then were hit with early termination fees when they tried to cancel their plan.

Total Merchant Services: Capabilities

Total Merchant Services offers a lot of different solutions for business owners. Let’s take a look at all of them.

When you sign up for TMS, they’ll provide you with your own merchant account to allow you to start processing payments. TMS will deposit your funds into your business bank account within two days of the payment being processed, and debits your account at the beginning of each month for the previous month’s processing fees.

About those processing fees—TMS does not list them on their website. Instead, they say working with them you can receive the “best credit card processing rates in the industry.” On the FAQ page, TMS says credit card processing fees “vary by card type, entry method, and other factors.”

The “other factors” language is ambiguous, but typically, businesses with high transaction volumes tend to get lower per transaction processing fees.

On the software side you’ll get inventory, employee, and customer management features, a virtual terminal for taking payments over the phone or via manual entry, reporting features to let you know how your store is performing, and the ability to set recurring payments. You can also access your PayAnywhere account from any internet-connected device, where you’ll have access to many of the same functions. When you sign up for TMS and select the PayAnywhere POS, you’ll get your system shipped directly to you preloaded and ready to go.

The best part is, all of this is “free.” We say that in quotes because all the hardware has to be returned when your contract expires, so it really ends up being more of a lease. However, not having to pay for otherwise expensive POS hardware could be a difference maker for a small business just starting out.

If you don’t need all the bells and whistles offered by the PayAnywhere POS, TMS also offers other “free” POS hardware and software solutions through Groovv. Among the options provided by Groovv are card readers, countertop terminals, registers, virtual terminals, and payment gateways (more on these later).

There is also a mPOS (mobile point of sale) option that includes a Bluetooth-enabled swipe/dip/contactless payment reader and an app for iOS and Android where you can manage inventory, employees, and customers, access reporting, take payments via a virtual terminal, and arrange recurring payments.

The last thing we’ll mention is that TMS offers payment processing and POS bundles for specific business types, including businesses in beauty and fitness, healthcare, home repair, food and beverage, and retail.

Payment Gateways

As we’ve already alluded to, TMS can assist with processing “card not present” payments through a virtual terminal or payment gateway. A payment gateway is a software application that authorizes online payments.

TMS uses Authorize.net for its payment gateway—a reputable service that works with most ecommerce platforms. Users either have the option to add a buy button to their website while having TMS host checkout, or create a self-hosted checkout experience that is PCI-compliant.

In terms of price, processing fees for digital payments or payments via a virtual terminal are typically higher than in-person payments. Given that TMS provides no information on their website in terms of pricing other than to say you’ll get a virtual terminal and payment gateway for “one low price,” the price you pay is likely something you work out with your independent sales agent.

Marketing

Another feature offered through Groovv (for presumably an additional fee) is the addition of gift card and loyalty programs to your POS. TMS offers gift card customization services, but charges and extra fee for printing them. Groovv’s loyalty program allows you to collect points on purchases and redeem them for free products or discounts on products.

Merchant Cash Advances

TMS also offers merchant cash advances (MCA) as a financing option for your business. With a merchant cash advance, TMS advances you cash in exchange for a percentage of your daily credit card and debit card sales, plus a fee (TMS characterizes it as a “a small, agreed-upon percentage of daily credit card transactions”). The benefit of an MCA is that it does not require collateral and you can receive funding the same day.

However, generally speaking, MCAs are an expensive financing option because fees tend to be higher than with other loan products. In addition, having a daily deduction of credit card receipts reduces cash flow, and once you start receiving MCAs, it makes it harder to change merchant service providers.

If you make a majority of your sales from credit card purchases, a MCA from TMS might make sense—just tread lightly, especially because TMS isn’t the most transparent when it comes to pricing.

Reporting

Total Merchant Services provides customers with some in-depth reporting an analytics functions through Payments Hub—another subsidiary of NAB. On the TMS website, it says Payments Hub “monitors vital aspects of a merchant’s business automatically so business owners can better understand their revenue, customers, and competing businesses.”

When you sign up for Payments Hub (presumably for an additional fee) you’ll get access to a series of dashboards through the Payments Hub portal where you can see how customers spend their money in your store, where you generate your biggest returns, and the impact of your discount and marketing campaigns.

Payments Hub also alerts you when your business is talked about on major social media or review platforms, and provides you the option to track your competitors so you can see if and how they are winning customers from you.

Note that new merchants get to use Payments Hub free for 60 days.

Integrations

Although TMS doesn’t offer any simple integrations with other software applications, they do provide a developer suite with application programming interfaces (APIs) and software development kits (SDKs) that developers can use to integrate TMS payments into other software, mobile applications, or websites. Those who use TMS’s developer suite also receive a free credit card terminal.

Customer Service

Total Merchant Services operates multiple 24/7 hotlines for assistance with different services they offer. In addition, there is a FAQ page on their website with a somewhat limited amount of information.

Total Merchant Services: Price

As we’ve already mentioned, a lot of what you’ll end up paying for Total Merchant Services depends on the payment processing rate you work out with your independent sales agent. TMS does not provide any pricing on their website, although according to customer reviews, TMS offers interchange-plus pricing. This means they take a small percentage of every credit or debit card transaction, plus an additional fixed amount.

Total Merchant Services: Pros

Now that we have touched on all that TMS does, here are the advantages to using their products:

Options

One of the best things you can say about TMS is that they provide merchants with a lot of different products to help them manage their business. It’s convenient to be able to go through one merchant services provider to get your payment processing, point of sale, marketing tools, and even financing. While some of these products are offered through NABs other subsidiaries, variety is a clear advantage to going with a large merchant services provider.

Free POS Hardware

POS hardware isn’t cheap, so getting yours for free is a huge boost to merchants who can’t afford to make that upfront expense. Just remember that you have to return your hardware when your contract expires, and you’ll have to pay a fee if the hardware is damaged in any way.

User Reviews

Total Merchant Services isn’t widely reviewed across the major review sites. Interestingly, neither is its subsidiary, Groovv, or its parent company, NAB. Here is what we were able to find:

The Better Business Bureau rating is odd, considering there are 123 complaints against TMS and only 21 of them have been closed in the last year. The G2 Crowd rating is based on only two reviews. Among the positive reviews (there weren’t many), customers said they appreciate TMS’s range of services and ease of use.

Total Merchant Services: Cons

We’ve already alluded to some concerns with Total Merchant Services. Let’s talk about them in more detail:

Transparency

In our experience, it’s not usually a good sign when a business doesn’t list at least some pricing information on its website. Furthermore, TMS is ambiguous about which services it provides, and which services are offered through other NAB subsidiaries. Not knowing who you are working with should be a red flag for merchants.

Independent Sales Agents

The reason TMS doesn’t list prices on their website is because it seems the pricing is worked out between the customer and the independent sales agent. This means that two similar customers could get wildly different deals depending on how well they are able to negotiate with their sales representative. Compared to other merchant services providers who offer the same pricing for all merchants, this will likely be a drawback for many small business owners.

User Reviews

Many of the online Total Merchant Services reviews are negative. On Better Business Bureau, users complain of deceptive contracts, high prices, surprise fees, and bad customer service. Over on TrustPilot many of the same sentiments are echoed.

Total Merchant Services: Alternatives

Given those cons, you’re probably going to want to learn about some alternatives. Here’s what we would recommend:

Square

The best thing about Square is that they are transparent. On their website you can find all the information you’ll need to make an informed decision. Plus, all of Square’s services are offered through Square, not a third-party organization. Square also offers many of the same services that TMS does, including payment processing, POS, and marketing. Square even offers a few add-ons that you won’t find with TMS, like Square payroll processing. Plus, Square receives high marks across all the major review sites.

Chase Merchant Services

If you’d rather go a more traditional route, you could consider using Chase Bank as your merchant services provider. With Chase Merchant Services, you’ll have a two-in-one processor and acquiring bank, which means that the payment processing back-and-forth can move that much quicker. Chase also offers POS hardware, including mobile card readers. Note that with Chase you’ll also get quote-based pricing, but it is a more transparent process than what you would experience with TMS.

The Final Word on Total Merchant Services

The only situation in which we would recommend Total Merchant Services is if you were able to get a very good deal through your independent sales representative. Even if you do, you’ll want to read the fine print of your contract closely, as many users have complained of surprise fees and deceptive policies. Generally speaking, given the market, we feel you could do a lot better than TMS. As a small business owner, you already have plenty to worry about—don’t let your merchant services provider be another.

How Does Customer Financing Work?

Customer financing lets customers enroll in a payment plan to buy goods or services. Similar to a credit card, the merchant receives full payment up front. The customer receives the item right away, but pays over time. The customer is typically charged interest on the financing, and the merchant might have to pay a small fee for each financed transaction.

After starting a business, your next task is finding ways to acquire and retain customers. In order to do that, you must adjust your business to the needs, wants, and budgets of your customer base. Depending on the type and price of your inventory, offering customer financing might be a great way for you to increase sales and customer loyalty.

Customer financing allows your customers to enroll in an affordable payment plan, rather than paying the entire price of an expensive item upfront. It’s designed to convert people from simply looking and thinking about shopping in your store to actually buying your product.

Small businesses and larger brands offer customer financing to convert more people into buyers. We’ll break down your customer financing options, how to choose a financing program that suits your business and preferences, and whether you should offer customer financing at all.

What Is Customer Financing?

Customer financing offers options for customers who want to buy your goods and services, but can’t afford them. By enrolling in a payment plan, an item that costs, for example, $500, becomes available to your customer for five payments of $100 (plus a small interest rate).

On the merchant’s end, this increases buyer conversion and customer loyalty. One study found that offering consumer credit options increases a customer’s average order size by 15%. Plus, 93% of customers who used credit options say they would make use of them again.

There are two main ways to go about offering customer financing. One option is to run credit checks, offer financing, and manage payment collection on your own. This takes up a lot of time and comes with legal responsibilities surrounding the use of consumer credit information. To save time and transfer some of the legal risks, most businesses rely on a third-party financing firm to make credit offers and collect customer payments.

Assuming you use a third party provider, here are the main steps involved in offering customer financing:

Customer sees a product or service they want to buy, either in-store or online.

Customer can’t afford the full price, so they apply for financing (usually, customers can apply at the online checkout cart, on their smartphones, or through the merchant’s point of sale system). The financing provider may run a credit check on the customer at this stage.

If approved for financing, the merchant will receive full payment on the product right away.

Customer receives the product or service right away, but pays back the financing provider on an installment basis.

Unless the financing provider is offering a promotion, the customer will have to pay an interest rate. The merchant might also have to pay a small percentage per financed transaction.

Here’s more information on customer financing providers, so that you can choose the best option for your business:

Photo credit: Everlane

Best Providers to Offer Customer Financing

Dozens of providers help businesses offer customer financing, but not all of them are right for small business owners. Many require certain sales minimums or a minimum number of financed purchases each month, and they take a large cut out of financed purchases.

The providers listed below have reasonable fees and no minimums, making them good options for small businesses. When you opt for one of these digital platforms, your customer can apply for financing in your store, online, or right from their smartphones.

Here are five customer financing platforms you might want to consider:

1. Viabill

Viabill is designed for online small businesses that want to offer financing to their customers. Instead of have to pay the full purchase price, customers can split the cost into four equal monthly payments. Whether you use Shopify, Magento, WooCommerce, or another platform for your ecommerce shop, you can seamlessly integrate Viabill into your online checkout within hours. Merchants pay a fee of 2.90% plus 30 cents per transaction, similar to credit card processing fees. Customers don’t have to pay any interest for purchases of up to $300. There are no credit checks and no payment due at checkout.

2. PayPal

There are many popular PayPal small business solutions, but one that you might not be familiar with is PayPal Credit. PayPal Credit is a good way for online businesses, particularly those that already accept PayPal as a form of payment, to offer customer financing. This program lets you add a financing button to your online checkout when your customer checks out with PayPal on your website. PayPal will make a credit decision within seconds. PayPal Credit is free for merchants who already accept PayPal. Customers don’t have to pay any interest if they pay in full for a good or service that’s at least $99 within six months.

3. Financeit

Financeit offers customer financing for purchases of up to $60,000. They don’t charge merchants transaction fees, and the standard program is free, too. Your customer can apply for Financeit customer financing from their smartphone in your store, and, if approved, they can receive funds as soon as the next day. Then, Financeit transfers the total payment amount to you within two business days, and the company takes care of payments from there. They’ll charge your customer an interest rate depending on their creditworthiness, region, and the size of the payment plan.

4. LendPro

LendPro’s customer financing platform integrates with your small business website, so your customers can check their financing options from the comfort of their own homes. They work with industries that normally sell expensive items, such as home goods, automotive, and jewelry. LendPro also sells application kiosks that you can install in your store. If your customer decides to pursue a payment plan, LendPro lets them evaluate multiple options through their application process. They provide payment plans and interest rates for all levels of creditworthiness and payment amounts.

5. Afterpay

Afterpay is a customer financing platform that has been utilized by some of the biggest names in retail, including Urban Outfitters, Anthropologie, and Everlane. Unlike LendPro and Financeit, which specialize in big ticket items, Afterpay finances small discretionary purchases, such as clothing, jewelry, and housewares. Your shoppers will see the Afterpay option while browsing and can fill out a short form for an instant approval decision. In approved, the customer can pay for the order in four equal installments, with the first payment due up front. They offer zero interest financing for customers. Merchants pay 4 to 6 percent plus 30 cents on each financed transaction.

Cost of Customer Financing

Any customer financing program involves a cost-benefit analysis. Although you’ll likely convert more customers and make bigger sales, the cost of the financing needs to make sense for your company.

A few programs, such as PayPal Credit, don’t charge any fees to the merchant. However, most customer financing programs charge businesses a 2% to 6% fee per transaction, plus a fixed $0.20 to $0.30. A few others charge a monthly fee, around $40 to $50, for a specific or unlimited number of financed transactions.

When assessing the cost-benefit analysis, it helps to have a few months of data under your belt. Once you see how many customers are utilizing the financing and how much it’s costing you, you can decide whether to offer this over the long term.

Customer Financing for Small Business: Pros and Cons

As always, when considering a new business model, you’re going to want to weigh the pros and cons to make sure it’s right for you. When it comes to customer financing, there are some obvious benefits, as well as a couple of hidden risks to prepare for.

Pros of Customer Financing

1. Increased Sales

As we mentioned, offering a payment plan on your expensive items makes it possible for customers who might have left without buying anything to complete a larger purchase. More sales for more expensive items? That spells more revenue for you.

2. You Gain Customers

If your target customer is in the market for a large purchase, like a sofa or a fridge, they might be more likely to buy from you than from a competitor that doesn’t offer financing. That customer might also be more likely to return to your store for future expensive items, since they already know that they’ll be approved for your payment plan.

3. Upfront Payments

If you’re working with an outside customer financing company, they’ll pay you upfront for the full price of the item and then collect incremental payments directly from the customer. Not only does that limit the risk for you, but it also increases your immediate cash flow, making it easier to take care of other things in your business.

Cons of Customer Financing

1. Potential for Bad Debts

Even if you do a thorough credit check before financing a customer (which you should!) you can never truly know how responsible they are with their finances or what kind of financial roadblock they may run into that would preclude them from honoring their debt agreement. The truth is, there’s always the potential for a customer to become delinquent on their payments, which would mean that you’re out that money. You need to be willing to take that risk.

2. Extra Accounts Receivable

You may save money by not hiring an outside customer financing company—but you will have to calculate the cost of the size increase of your accounts receivable department. Even if that just means hiring another person to be responsible for tracking and following up on financing payments, employing that extra hand is an added expense.

3. Impact on Cash Flow

Without the upfront cash you’d receive from a customer financing company, offering financing on your own will have an adverse impact on your cash flow, at least at the beginning. Eventually you’ll start receiving those payments, but if having cash on hand is important to your business, this might not be the best option for you.

Bottom Line: Should You Offer Financing to Customers?

You should offer customer financing if you think your customers will take advantage of a payment plan. Before signing up with a financing company (especially one that charges you), try to gauge interest with your customer base. Send out an email survey or talk to customers in your store who leave without purchasing anything. If it seems like people would be interested in financing—and it would incentivize them to buy an item that they otherwise wouldn’t—then customer financing could boost your business’s popularity.

Another thing to consider is what you’re actually selling. Customer financing is proven to work for big-ticket items, like furniture or appliances. But even if you’re selling products like clothes or smaller decor that are more affordable, a financing program might be useful. Many businesses that sell small items to a millennial audience have incorporated customer financing.

Ultimately, offering financing to customers is a win-win situation for many small businesses. You get more conversion and bigger sales. Your customers get the product or service they want or need. The most important thing is to find a customer financing program that works for you and your customer base.

]]>Vend POS Review 2019: Pricing, Features, Alternativeshttps://www.fundera.com/blog/vend-pos-review/
Tue, 19 Mar 2019 15:42:45 +0000https://www.fundera.com/blog/?p=51521There are tons of different point of sale system options out there for small businesses. So many, in fact, that […]

]]>There are tons of different point of sale system options out there for small businesses. So many, in fact, that it can be difficult to figure out which point of sale system is right for you and your company. Each POS provides different advantages depending on the kind of commerce you conduct, which means you may have come across Vend POS and wondered if it would be a good fit for you.

The Vend POS system is nearly 10 years old and has a ton of features to offer for the price. Even though there are other competitors out there—such as Square, Aloha, Revel, Shopify, and Shopkeep to name a few—Vend POS pricing and software has kept it at or near the top of POS reviews all the while.

Even though Vend reviews might give the platform glowing remarks, you still have to determine if it’s the right POS system for your company. We’ll help you walk through the pros and cons, as well as talk about a few Vend POS alternatives to boot.

What Is Vend POS?

Before we can truly get into the nitty-gritty about a thorough Vend POS review, we have to cover the ins and outs of what Vend actually is.

Vend is, in essence, a modern-day register and inventory system rolled into one handy tablet. Like other POS systems out there today, Vend makes customer transactions easy by listing out inventory items for cashiers to use when customers buy goods. Vend and other POS systems help keep track of inventory as well, allowing businesses to enter new goods and monitor stock.

Vend is a software platform that business owners can access from Android and Apple devices, putting the power to conduct business in the palm of their hands. That means no bulky hardware, no proprietary machinery, and much more flexibility to sell wherever your customers are.

Of course, Vend is only one of many POS options out there. That’s why we’ll break down the specifics on what sets Vend apart from its competitors, and where it falls short against its challengers.

A Comprehensive Vend POS Review

The Vend POS system was groundbreaking when it debuted in 2010, as it was one of few providers that worked entirely in the cloud. This meant that users didn’t have to make sure they backed up files on-site, and that an outage in their store wouldn’t inherently disrupt business. Few POS systems could make a similar claim at the time, even if cloud-based POS systems are now the norm.

In the nine years since Vend debuted, the company has made sure to keep their offerings up to speed with both their long-standing and upstart competitors. Vend pushes updates to their software often, and makes sure to keep the interface easy to use and hassle-free. Both of these core components of Vend’s strategy have helped them stay on top of the game: They provide an easy solution for newbie and savvy retail operations alike. And, best of all, they don’t charge a fortune for their product, either.

Today, Vend does much more than conduct transactions. The platform helps manage inventory, lets users conduct business in brick-and-mortar locations and online, and even offers software integrations with other commonly used platforms for retail businesses. Plus, Vend offers 24/7 customer support, which means you’re never left in the lurch if you encounter a payment issue beyond regular office hours.

Vend POS Pricing

Vend POS pricing breaks down into two main options: Vend Lite, which costs $99 a month, and Vend Pro, which costs $129 a month. There’s also the option to get a customized Vend plan for Enterprise, which comes with a tailored quote depending on your needs.

Vend Lite and Vend Pro offer the same core capabilities. As you’d expect, both come with the Vend POS software and real-time inventory management programs. The same goes for technical support as well—both plans give you the ability to get assistance 24/7 either over the phone or the Vend website. Vend Lite supports one retail outlet, one register (with additional registers costing $49 a piece), and support for $20,000 in monthly turnover. You’ll also get small business reporting analytics and Xero Accounting support, which is great if your business uses Xero Accounting to balance its books.

Vend Pro takes things a step further by supporting one or more outlets, as well as the same structure for one or more registers. But where Vend Lite caps your monthly turnover at $20,000, Vend Pro gives you an unlimited turnover rate every month, which is great for high-volume businesses. Vend Pro also provides advanced reporting and analytics, support for other software APIs, and can help you manage your retail operations across several locations. Plus, you can set up promotions and gift cards for your business with a Vend Pro account.

The Vend POS may not be the cheapest option on the market, but the two pricing tiers are different enough to help small businesses afford to onboard the system without taking it on the chin too badly.

Vend POS Software

Vend POS really shines in terms of software. As we mentioned earlier, the entire Vend system is cloud-based, which means that transactions happen within the Vend system and are stored remotely on the company’s servers. This means you don’t have to install anything on your store’s networks, and you won’t lose your records in the event that your business has a computer system outage.

Better still, Vend will cache transactions in the event that you lose network connectivity in your store. You won’t be out of luck if you lose internet connectivity temporarily, as you’ll be able to do business uninterrupted. Vend will re-sync once your connectivity is restored, which makes it a great reliable option for small business owners who like what Vend has to offer but may be dissuaded by needing constant web connectivity.

The Vend POS platform doesn’t require that you have cutting-edge hardware in order to make it work, either. All you need is a system that can handle the latest version of Google Chrome (which is the required browser for Vend compatibility) and either Windows 7 or Chrome OS X 10.5. In other words, you can get by just fine without buying the latest and greatest gadget. The same holds true for iPad use as well—if it can run a relatively recent version of Chrome, you’re in business.

Vend POS System Features

Vend POS has a ton of nifty system features that just about any small business owner can find a use for. Some of these features help make daily operation smoother, such as their inventory management platform. Others help improve the customer experience by offering rewards for repeat business. Here are a few of the top Vend POS system features that you could expect to use often.

Vend POS Inventory Tracking

Both Vend tiers include their inventory management program, which helps you keep track of your current stock without having to periodically itemize and account for remaining inventory by hand. This can be a massive time-saver, since inventory checks can take ages to complete (if you even do one at all—as 48% of businesses admit to not doing inventory checks).

Vend POS Loyalty Program

Another key Vend POS feature is its loyalty program support. Vend makes it easy for their clients to set up and maintain customer loyalty programs, each with the intent of turning new patrons into repeat business. Setting up your small business’ loyalty program on your own can be daunting, but Vend makes it easy. Their dollar-for-dollar rewards system lets business owners determine a minimum spend amount before a customer receives a benefit. Plus, Vend shows customers exactly how close they are to cashing out, which helps incentivize them to keep coming back.

Vend POS Customer Management

In addition to these two features, Vend stands out among the crowd for their customer management capabilities. The system keeps a full contact list of customers, which users can create with a spreadsheet or manual entry of existing clientele data. Users can even create custom forms by including things such as an address, phone number, or social media account when logging customer information. Plus, if you take advantage of Vend’s loyalty functionalities, you can even send emails out to new enrollees once they’re in your system.

Vend POS Ecommerce Functionality

Vend POS is a great option for businesses that conduct in-store and online transactions. The platform makes it easy to get your ecommerce functionality off the ground, or to take it to the next level. Vend offers a website builder replete with different themes to fit your brand aesthetics. It also syncs in real time with your store’s inventory, and can help fulfill orders in real-time by sending purchases to the Vend account administrator as soon as they’re placed. Vend makes it simple to get going on an ecommerce drive, which helps take the guesswork and frustration out of moving your small business online.

Vend POS Customizations and Add-Ons

Vend offers several customization options. Some customizations are smaller in scale, such as themed ecommerce portals to match your business’s look and feel (or even your existing website). Other customizations focus on backend integration with other common retail and commerce platforms. Currently, Vend supports integrations with Xero, Shopify, Timely, and Perkville. Xero provides cloud-based accounting tools, Shopify makes ecommerce easy with customizable storefronts and websites, Timely helps employers track their staff’s work hours, and Perkville provides a suite of tools and options to help small businesses create robust perks and loyalty programs.

These are only a few of the current Vend POS customizations and add-ons. The platform works with a slew of other APIs, which helps you integrate Vend into your existing software suite with ease. Even if your current setup is somewhat complicated and doesn’t seamlessly pull Vend into the mix, the Vend client support team is able to help get things running smoothly by troubleshooting and optimizing your existing workflow.

How Easy Is Vend POS to Use?

Vend POS has a great reputation for being easy to use, whether you’re a seasoned retail pro or a relative neophyte to selling directly to clients in a store. This ease of use is one of Vend’s biggest assets, as the platform has always been known for its simple interface and hassle-free processes. Vend works right out of the box without needing a ton of setup, education, or lead time. This means that you can get down to business more quickly, all while onboarding a new POS at the same time.

Before you sign up for a Vend account, however, be sure to sign up for a free trial in order to better learn the system. The free trial comes with a self-guided tour that walks you through all you’ll need to know in order to get started. Once you’re past the basics, you’ll find that even Vend’s inventory management and customer management systems are pretty easy to understand as well.

All told, if you value simplicity above other qualifications, Vend POS offers it in spades. This alone may make it the right platform for you, depending on how much time and effort you want to spend on getting a new POS system in place.

How Does Vend POS Stack Up to Other POS Systems?

As we mentioned before, Vend POS is not without its competitors. In the nine years Vend has been around, a small army of comparable POS providers have popped up. Some, like Square, have name recognition that Vend may not. Others, like Shopify, have branched out into the POS arena after conquering the world of ecommerce. There are a ton of Vend POS alternatives out there, which means you’ll need to factor in your specific needs before committing to one platform over another.

For example, Square POS provides a more cost-effective solution for small businesses that would prefer to have a free software platform that charges per transaction, rather than monthly. This is a great option for businesses that may not have a full-time retail presence, such as those at pop-up shops or markets.

Shopify, on the other hand, costs significantly less than Vend (anywhere from $9 to $29 a month depending on your plan), and complements your existing Shopify account if you’re already using the company for ecommerce transactions.

Vend comes with its own perks and advantages, particularly if you want to go with a high-performing POS with minimal setup and management headaches. But, if you’d rather opt for a less expensive or more nimble system, there are plenty of alternatives out there to consider.

Is Vend POS Right for Your Business?

Vend POS was a pioneer in the cloud-based point of sale arena, and the company has made sure it kept up with trends and innovations along the way as well. Vend still stands out as one of the best POS providers out there right now. They’ve been able to accomplish a difficult feat—creating an easy to use system that is still rife with features, functionalities, and updates that keep it fresh and cutting-edge. You won’t hate using Vend POS, whether you’re merely making checkouts or going all-in with analytics and customer loyalty programs.

]]>What Is an Enrolled Agent and Does Your Business Need One?https://www.fundera.com/blog/enrolled-agent/
Tue, 19 Mar 2019 14:41:22 +0000https://www.fundera.com/blog/?p=51514Enrolled Agent Definition An enrolled agent is a federally authorized tax practitioner empowered by the U.S. Department of the Treasury […]

Enrolled Agent Definition

An enrolled agent is a federally authorized tax practitioner empowered by the U.S. Department of the Treasury to represent taxpayers before the IRS for tax issues including audits, collections, and appeals. To become an enrolled agent one must pass an extensive exam or work at the IRS for a minimum of five years in a role that requires interpretation of the tax code. Enrolled agents can assist small business owners in situations where they must deal directly with the IRS.

As a small business owner, keeping your finances in order is a top priority. For some, it is also a constant struggle. That’s why there are tax preparers and financial advisors. These folks understand the tax code and can help you with your business tax returns, accounting needs, and general tax compliance requirements.

However, not all financial advisors are the same.

Two types of financial advisor you may have heard of are bookkeepers and certified public accountants (CPA). A lesser-known title is that of the enrolled agent. An enrolled agent is the highest credential a tax practitioner can receive from the Internal Revenue Service (IRS). Because of the level of expertise required to become an enrolled agent, there are only about 53,700 practicing enrolled agents in the United States, according to the National Association of Enrolled Agents (NAEA).

As a small business owner, it behooves you to know what an enrolled agent can do, and how one can help your business.

What Is an Enrolled Agent?

To understand the job of an enrolled agent, it helps to first look at the history of the profession. According to the NAEA, the enrolled agent was a job created in 1884 when Congress decided to regulate individuals who represented citizens to the U.S. Treasury Department after being flooded with dubious claims relating to Civil War losses.

The enrolled agent role expanded with the passage of the first income tax law in 1913 to include claims for monetary relief for citizens whose taxes had become inequitable. As taxes became more complicated, the job of the enrolled agent grew to include the preparation of tax forms. In 1941, the role of the enrolled agent was formalized in Treasury Department Circular No. 230. According to the NAEA, the regulation stipulates that “enrolled agents, Circular 230 practitioners, are federally authorized tax practitioners empowered by the U.S. Department of the Treasury to represent taxpayers before the Internal Revenue Service (IRS) for tax issues including audits, collections, and appeals.”

What Does an Enrolled Agent Do?

Now that you understand what an enrolled agent does in theory, let’s learn more about what it looks like in practice.

The most important thing an enrolled agent does is represent taxpayers before the IRS at all administrative levels (examinations, collections, and appeals). For example, if you have a tax problem, a notice from the IRS, or are under audit, you can hire an enrolled agent to handle direct interactions with the IRS, provide information and explanations on your behalf, and enter into an agreement with the IRS.

The only area where an enrolled agent cannot represent you is in tax court. In order to represent a taxpayer in tax court, you must be a licensed attorney or have passed the “U.S. Tax Court Non-Attorney” exam.

Enrolled agents are also authorized to advise and prepare tax returns for individuals, partnerships, corporations, estates, trusts, or any other entities with tax-reporting requirements. According to the NAEA, enrolled agents are the only federally licensed tax practitioners who specialize in taxation and have unlimited rights to represent taxpayers before the IRS.

It is important to note that enrolled agents have privilege with the taxpayers they represent, under certain conditions. This privilege allows for confidentiality between the enrolled agent and taxpayer in situations where the taxpayer is being represented in cases involving audits and collection matters. However, this privilege is not applicable to the preparation and filing of a tax return, and does not apply to state tax matters.

How Is an Enrolled Agent Different From Other Tax Experts?

Enrolled agents differ from other tax practitioners like CPAs and bookkeepers in a few ways.

Credential

The enrolled agent credential can only be acquired in one of two ways: An individual must work for the IRS for a minimum of five years in a role that requires interpretation of the tax code, or pass all three parts of the Special Enrollment Exam (SEE) and pass a background check. The background check is administered by the IRS and includes looking into your personal tax history.

The SEE exam focuses specifically on tax law (as opposed to the CPA exam, which focuses on auditing and accounting rules and procedures) and is divided into three parts: individuals, businesses, and representation, practices, and procedures. Each part features 100 questions and takes three and a half hours to complete. When you pass one part of the exam, you have two years to pass the other two parts.

Once credentialed, enrolled agents are required to abide by the provisions of the Department of Treasury’s Circular 230, which provides the regulations governing the practice of enrolled agents before the IRS.

Continuing Education

The IRS requires enrolled agents to complete 72 hours of continuing education every three years, with a minimum of 16 credited hours annually, in order to maintain their active enrolled agent license and practice rights. Classes include everything from updates to the tax law to enrolled agent ethics.

Federal License

Another major difference between enrolled agents and other tax professionals is that enrolled agents are federally licensed, meaning they can practice in any state in the country. CPAs, on the other hand, are licensed at the state level, and can only practice within the jurisdiction in which they are licensed.

Unlimited Rights

Enrolled agents must demonstrate to the IRS their expertise in all areas of taxation in order to be awarded the credential. If they do, they are granted unlimited representation rights to represent taxpayers before the IRS. This means they can represent all types of taxpayers on any matter regarding taxation, including audits, payment or collection issues, and appeals. CPAs and attorneys are also afforded this right.

Enrolled Agent vs. CPA

The jobs of CPAs and enrolled agents are actually quite similar. The main difference is that an enrolled agent specializes in taxation. CPAs can also perform tax services, but may not specialize in taxation. However, a CPA can perform other services like accounting and bookkeeping, which an enrolled agent may not be as knowledgeable in (unless they are also licensed as a CPA).

Although both professions have rigorous continuing education requirements, a CPA must also have a college degree, pass the Uniform CPA Examination, and meet the requirements of their state’s board of accountancy.

Does Your Business Need an Enrolled Agent?

According to Jerry Gaddis, an enrolled agent and CEO and founder of Florida-based tax firm Tropical Tax, there are several scenarios in which it makes sense to work with an enrolled agent. The first is when you are selecting a legal entity for your business.

“You should work with an attorney to select your legal entity,” says Gaddis. “But an enrolled agent can help you understand how you will be taxed depending on your business type.”

Once your business is formed, Gaddis says an enrolled agent can help explain to you what business expenses are deductible from your taxes. They can also prepare and file your business and payroll tax returns. An enrolled agent is especially helpful if you’re filing returns in more than one state, as enrolled agents can operate across state lines. Note that a CPA can also prepare your business tax returns, but only in the state in which they are licensed.

If the IRS has any questions regarding your taxes, or if they decide to conduct an audit, an enrolled agent could advocate on your behalf.

“You could give us the power of attorney and then the IRS would have to cease communicating directly with you and instead go through us,” Gaddis says. An enrolled agent could also work on the behalf of a small business to settle an appeal or collections matter—such as failing to file your tax return, failing to pay tax penalties, debt relief, tax evasion, tax liens, tax levies, and tax fraud.

If you’re looking for a little accounting guidance, or need help with your bookkeeping, budgeting, or financial planning, you’re better off working with a CPA. But if you have any issues regarding taxation, Gaddis recommends finding an enrolled agent.

“We are America’s tax experts,” Gaddis says. “If you want to know how your business is taxed and how to minimize your tax liability, call an enrolled agent.

How to Find an Enrolled Agent

There are a few different ways you can go about finding an enrolled agent. The first is to use the database provided on the NAEA website, which provides you with a list of enrolled agents in your area. On top of federal requirements, NAEA members are also bound by a code of ethics and rules of professional conduct of the association.

Popular tax preparation companies like H&R Block also have many enrolled agents on staff to assist with the particular of filing taxes. Public and corporate accounting firms, law firms, investment firms, private practices, banks, and state departments of revenue also typically employ enrolled agents. Many enrolled agents also work as independent contractors.

Finally, performing a local Google search or flipping through your Yellow Pages is another way to find credentialed enrolled agents in your area. Oftentimes, an enrolled agent will have the acronym “EA” in parenthesis next to their name.

Closing the Book on Enrolled Agents

Enrolled agents are a highly specialized form of financial advisor who can provide valuable assistance to small businesses dealing with tax issues. If you’re dealing with the IRS in any capacity, it would be smart to bring an enrolled agent into the fold to make sure your business gets the best outcome possible. Nobody likes tax issues. Enrolled agents are there to make sure the process is as painless as possible.

]]>Braintree vs. PayPal: Which Is Right for Your Business?https://www.fundera.com/blog/braintree-vs-paypal/
Tue, 19 Mar 2019 13:51:28 +0000https://www.fundera.com/blog/?p=51518In order to securely accept payments on your ecommerce store or small business website, you need to team up with […]

]]>In order to securely accept payments on your ecommerce store or small business website, you need to team up with a good payment service provider (also known as a PSP)—and big-hitters Braintree vs. PayPal are just two of your many PSP options.

But before we get into the details about Braintree vs. PayPal, let’s clarify our terms. A payment service provider will supply your business with two necessary tools in order to accept online payments: a payment gateway and a merchant account. Essentially, a payment gateway is the software application embedded into your online store that authorizes the secure transaction of credit card payments.

Merchant accounts are the next step in the payment process: It’s a type of bank account into which payments obtained through credit card transactions (whether rendered online, over the phone, or in-person) are held before the provider handling this transaction deposits those funds, minus their fees, into your business bank account.

Ideally, a good payment service provider—Braintree vs. PayPal among them—makes the checkout process seamless for your customers. Importantly, too, they should make it as easy as possible for small business owners, or their team of developers, to implement this technology onto their platforms. Here’s what you need to know about Braintree vs. PayPal, so you can decide which (if either!) of these PSPs are right for your online business.

Braintree Features, Pricing, Pros, and Cons

Braintree was acquired by PayPal in 2013, but they’re hands-down the more tech-forward PSP among the two. With their impressive suite of developer tools, you or your engineers can customize your shopping cart to the hilt and integrate it with your existing platform. It’s designed to scale along with your business, too, so you never need to worry about outgrowing this platform.

Through Braintree, you can accept PayPal payments, Venmo in the U.S., all major credit and debit cards, digital wallets, local payment methods, and ACH deposits in over 130 currencies from 45 countries around the world. And if you want to accept credit card payments in person—if you have a brick-and-mortar location in addition to your online store, or if you want to sell your goods or services on-the-go—then you can integrate the PayPal Here SDK into your POS app, which will enable you to use PayPal’s range of physical POS card readers.

What makes Braintree especially unique is that they provide their customers with their own, individual merchant accounts, rather than lumping them into a single, aggregated merchant account as most third-party payment processors do.

In addition to a payment gateway and merchant account, Braintree offers their small business customers tools and services to help streamline their internal processes, like customizable sales reporting, recurring billing, and integration with a ton of third-party apps. As you can imagine, too, Braintree is loaded with advanced fraud and data security tools, and ensures PCI compliance.

Braintree is an especially smart option for marketplace businesses, as Braintree actually offers a payment solution designed particularly for these platforms’ unique needs: With Braintree Marketplace, you’ll get the infinitely customizable, scalable payment solution of a standard Braintree account, plus an integration with Hyperwallet, which enables fast, efficient, and secure global outbound payouts.

Braintree Pricing

Braintree’s pricing is incredibly simple: They charge a flat-rate fee of 2.9% + $0.30 per transaction. The exceptions are ACH deposits, which cost 0.75% per transaction, and PayPal and PayPal Credit payments, which incur no fee at all. (Verified charitable 501(c)(3) organizations receive discounted rates.)

For that pay-as-you-go fee, you’ll have access to Braintree’s major products and services, including a merchant account and payment gateway; fraud tools; third-party integrations; reporting; and recurring billing. You’ll also be able to contact Braintree’s customer service team via phone and email, and take advantage of their data migration assistance service.

Other than that, the only major fees you need to know about are:

An additional 1% fee for transactions in non-U.S. currency

An additional 1% fee for non-U.S. customer credit cards

$15 chargeback fee

Any other fees incurred for certain transactions are clearly delineated on Braintree’s Pricing page. Alternatively, businesses that process larger volumes can contact Braintree to receive a custom pricing model, which might carry a customized flat rate or interchange-plus pricing. And as a major bonus, you can also request a free sandbox trial to test out how Braintree would work with your existing platform before committing to the service.

Braintree Pros and Cons

As we mentioned, Braintree provides every customer with their own, dedicated merchant account, rather than depositing your funds into a provider-held aggregate account. Having your own merchant account is a much safer and stabler solution for a few reasons. Firstly, the risk of fraud inherently increases with aggregated accounts, so providers are extra-sensitive to unusual behaviors—which may result in more frequent frozen accounts and held funds.

Also, merchant account providers must align with industry-set rules regarding the handling and disbursal of money in dedicated merchant accounts. On the other hand, aggregate accounts are fully governed by the provider itself, so they’ll set their own rules and terms that they can essentially change at any time.

Beyond that, Braintree’s pricing is simple and transparent, and their developer tools are some of the most robust and sophisticated in the market (perhaps competing only with Stripe, another behemoth in the world of tech-centric PSP providers). If you have the ability or the team to take advantage of Braintree’s developer tools, you can pretty much create whatever checkout experience you want.

On the downside, where Braintree’s developer tools are among their greatest strength, this option might not make sense if you don’t have the engineers (or the engineering skills yourself) to use them. In that case, you might want to consider a simpler PSP—and PayPal might fit the bill.

PayPal Features, Pricing, Pros, and Cons

PayPal offers a ton of merchant services, including the ability to accept and process payments in person (with PayPal Here) and through invoicing (with PayPal Invoicing). But today, we’re focusing on PayPal’s payment gateway.

PayPal Payments Standard is best if you don’t have coding experience or a developer on your team, as you’ll simply need to copy-and-paste a line of code, or integrate their plugin with your existing shopping cart. According to PayPal, either option will only take you about 15 minutes to implement. As you can likely guess, PayPal Payments Standard doesn’t allow for customization; rather, it’ll embed a “Buy Now” button onto your website, which will then reroute your customers to a PayPal-hosted checkout page.

If you’d prefer a fully customized checkout solution that keeps customers on your own website, then opt for PayPal Payments Pro. This plan also gives you access to a virtual terminal, which allows you to accept credit cards through your computer, mobile phone, or devices without an external card reader. Do note, however, that this solution requires a developer to implement.

Both payment gateways enable you to accept payments in 25 currencies from 202 countries, send online invoices, and offer simplified PCI compliance. Also, both are compatible with major ecommerce platforms like Shopify, BigCommerce, WooCommerce, and Magento.

PayPal Pricing

PayPal Payments Standard costs no additional monthly fee, but PayPal Payments Pro costs $30 per month. Whichever payment gateway plan you choose, you’ll pay 2.9% + $0.30 per transaction if the funds are coming from a U.S. account—which, as you can likely tell, is the industry standard—though nonprofit organizations can receive a discounted rate.

The exception here is American Express card usage, which incurs a 3.5% transaction fee. And if your customer’s funds are coming from outside the U.S., then you’ll need to pay a fee of 4.4% plus a fixed fee based on the currency.

You’ll need to pay extra for certain PayPal’s add-on features, too. PayPal’s recurring billing services costs an additional $10 per month, and their Advanced Fraud Protection Services cost $10 per month plus an additional $0.05 per transaction. Any other fees you may need to know about, including chargeback fees and mobile card reader fees, can be found on PayPal’s merchant fees page. Do know, however, that you’re not locked into long-term contracts, so you can cancel your PayPal payment gateway plan at any time without incurring cancellation fees.

PayPal Pros and Cons

Small business owners who are worried about the complexities involved in setting up a payment gateway will definitely benefit from PayPal Payments Standard, as it’s designed specifically to make integration simple for non-programmers.

However, PayPal doesn’t provide users with their own merchant accounts. Instead, PayPal deposits your money into their single, aggregated account, then delivers your funds into your bank account minus fees according to the terms delineated in your contract.

It’s also worth noting that PayPal’s (and, by extension, Braintree’s) in-person POS terminals are fairly limited—right now, they only offer mobile card readers, and they don’t have a countertop register. However, they do partner with other reputable POS systems, like Vend and Lavu, so a more robust POS solution is available through the PayPal network if you need it.

Braintree vs PayPal: Which PSP Is Right for Your Business?

Ultimately, Braintree vs PayPal are both reliable PSP providers. But we’d say that if you want the most customization possible for no additional fee—and join the ranks of some of the world’s biggest tech companies, like Uber, Dropbox, and Jet—then opt for Braintree, because to get a similar level of customization through PayPal, you’ll need to pay an extra $30 per month for a PayPal Payments Pro account. We’d also recommend Braintree for marketplace companies, as Braintree Marketplace is designed especially to meet your unique needs.

On the other hand, PayPal (or, more specifically, PayPal Payments Standard) is likely a better option for business owners who need a simple online payments solution that’s easy to integrate into their ecommerce platform.

Keep in mind, though, that Braintree vs. PayPal are hardly the only players in the PSP game. So if you’re unsure whether Braintree or PayPal is right for your business, explore your other options—Stripe is another favorite, especially among tech businesses—so you can feel absolutely confident in your choice of payment service provider.

]]>When you think of mom-and-pop shops, you probably imagine a quaint, family-owned drugstore fixed on the corner of a neighborhood strip mall or a general store located in the downtown quarter of a small town. Although this wouldn’t be inaccurate, mom-and-pop shops have come a long way over the last century.

The term “mom-and-pop” can be applied to various types of small businesses, such as restaurants, bookstores, electronic repair shops, car repair garages, and more. What really distinguishes mom-and-pop shops from other businesses is not their industry but their size. Historically, mom-and-pop businesses were typically owned and run by families. This limited the size and scope of their operations, putting them at a disadvantage to larger businesses with more resources.

Although this is still the case today, the advent of the internet in the early 90s and the rise of e-commerce shortly after led to significant changes in business models. Both small businesses and enterprises alike had to adapt to drastic market changes to survive. Indeed, the challenges introduced by large online retailers (namely, Amazon) to small and medium-sized (SMB) business owners has sent shockwaves through the business landscape.

Specifically, the growing popularity of e-commerce shopping has forced several prominent US retailers to close a number of their brick-and-mortar locations, which has led many to believe that mom-and-pop businesses will suffer a similar fate. While small businesses are by no means unaffected by e-commerce trends, they’ve proven to be more resilient than you might expect.

For example, mom-and-pop bookstores have found ways to thrive amidst the adversity. According to the American Booksellers Association, there has been a 35% increase in the number of independent bookstores between 2009 and 2015. What’s more, some indie bookstores have reported an increase in sales despite the fact that Amazon now has over 100 million prime subscribers.

So, what does this say about mom-and-pop shops? Consumers still crave an in-person shopping experience — so much so that it transcends the convenience of online shopping. It’s safe to say that small businesses are here to stay, and that they are still a vital part of the US economy.

In celebration of National Mom and Pop Business Owners Day, we’ve created an infographic that demystifies common myths surrounding mom-and-pop shops and offers seven tips to help you succeed:

]]>Connect2Capital Review 2019: Is It Right for Your Business?https://www.fundera.com/blog/connect2capital/
Mon, 18 Mar 2019 14:43:00 +0000https://www.fundera.com/blog/?p=51455Securing business financing can be a daunting prospect: First, there’s the task of researching and vetting potential lenders, which now […]

]]>Securing business financing can be a daunting prospect: First, there’s the task of researching and vetting potential lenders, which now extend far beyond brick-and-mortar banks to include online lenders, as well. And then, of course, you’ll need to qualify for a business loan, which often requires healthy credit, years of experience, and demonstrably strong cash flow. Too often, business owners who don’t meet these rigorous standards are turned down for financing, or are offered loans with sky-high interest rates and hidden costs. This is where platforms like Connect2Capital can come in handy.

Connect2Capital, a new initiative by CRF and U.S. Bank, is a technology-driven platform that connects small business owners with a network of nonprofit CDFI lenders that aim especially to provide funding for business owners in disadvantaged communities.

In this review, we’ll tell you what you need to know about Connect2Capital and, if you’re interested in this service, how to apply for a loan within the network. If you decide that Connect2Capital isn’t the right service for you, we’ll also share a few responsible alternative lenders for you to consider, all of which boast equally streamlined online applications.

What Is Connect2Capital?

Connect2Capital is a technology-driven platform developed by CRF (Community Reinvestment Fund), a Minneapolis-based nonprofit CDFI (community development financial institution), in partnership with U.S. Bank. This platform connects small business owners with community lenders and other CDFIs to meet their financing needs.

As a reminder, CDFIs like CRF are financial institutions that don’t operate with the motive to generate profit; rather, their foremost mission is to make financial products and services more accessible to more people and businesses. CDFIs focus especially on financially aiding individuals and businesses that live or operate in low-income or underserved areas in order to encourage economic growth in these communities.

To clarify, Connect2Capital is not a direct lender; it’s a marketplace for small business loans available through CDFI lenders. Connect2Capital’s lending partners (some of which include Excelsior Growth Fund, LiftFund, MoFi, and Accion) can offer loans as little as $500 or as much as $4 million. These loans can help business owners fund a number of projects, like starting a business, expanding operations, buying equipment and inventory, acquiring a business, refinancing debt, and purchasing real estate. In addition to matching business owners with lenders, Connect2Capital can also direct entrepreneurs to resources for other needs, like business plan creation and general management.

To find out if you prequalify for a loan through Connect2Capital, you’ll fill out a short online application answering the following questions:

How much capital you’d like to borrow

How you intend to use your loan funds

How quickly you need financing

Whether you have a business plan

Whether you have collateral to secure your business loan (and, if so, the type of collateral)

From there, Connect2Capital will determine whether your business is eligible for funding through any of their partner lenders.

Top Alternatives to a Connect2Capital Loan

Connect2Capital doesn’t provide a ton of information about their services, and other than the testimonials provided on their website, user reviews of this new platform are hard to come by—so we can’t judge the quality of Connect2Capital’s loans, customer service, or overall customer experience.

That doesn’t mean you shouldn’t apply for a loan through Connect2Capital, or at least see if you qualify for one. CRF is a highly reputable CDFI, and the Connect2Capital application is quick and free.

But we can say with certainty that the following lenders are reliable and responsible. Since they’re in the Fundera network, we’ve personally vetted all of these lenders and work with them regularly to provide our small business clients with the most accessible, lowest-cost financing that they can qualify for. So if you’re seeking a line of credit, term loan, SBA loan, an equipment lease, consider the following lenders:

Term Loan Through Fundation

Small business owners seeking traditional, lump-sum financing should consider Fundation, as this premium online lender can provide qualified applicants with term loans of up to $500,000.

The best uses of Fundation term loans tend to be for larger projects, like purchasing equipment or renovating your business property. If you’re in need of general working capital or a means of smoothing cash-flow gaps, look into Fundation’s line of credit product (or a line of credit from another lender, like Kabbage, which we’ll tell you more about next).

Fundation takes a number of your credentials into consideration when determining the cost of your loan, including the stability of your business, your cash flow, and your credit history. Typically, however, you can expect that your Fundation APR will range between 7.9% and 28.9%. You’ll repay your Fundation term loan with bimonthly payments for up to four years. And if you’re able, you can repay your loan early without incurring a prepayment penalty.

Fundation’s application process is completely online, though the platform’s team of underwriters consider your applications manually. And as long as you provide all the proper documentation, they may be able to return to you with a loan decision in as little as 24 hours. (Also note that business owners seeking loans greater than $100,000 will receive a call from a Fundation representative after submitting your online application.)

If you’re looking for a Fundation term loan under $100,000, you’ll need an annual revenue of $100,000, a year in business, and a 660 personal credit score, at a minimum, for your application to be eligible.

Line of Credit Through Kabbage

Plenty of online lenders offer business lines of credit, but we often refer small business customers seeking these flexible loans to Kabbage for their streamlined application process and quick time-to-funding windows—if your application is approved, you’ll have access to your line of credit funds in your bank account pretty much instantly. Plus, Kabbage doesn’t consider applicants’ credit scores as heavily as other lenders do, so business owners who’ve been turned down for loans through conventional lenders might have a better shot at securing a Kabbage loan.

Now, onto the details: Kabbage can provide short-term lines of credit between $1,000 and $250,000, with repayment terms lasting either six or 12 months. Kabbage will automatically pull repayments from your bank account once a month for as long as your term lasts. Their interest payments are a little unique, however—your rate will land between 1.25% and 10%, but interest is frontloaded for the first few months of your loan. After those first few months, your interest rate will drop for the remainder of your loan.

To qualify for a Kabbage loan under $100,000, you need at a minimum $50,000 in annual revenue, a year in business, and a 550 personal credit score (but again, Kabbage doesn’t weigh credit scores as heavily as other lenders do). Business owners seeking larger lines of credit will need to present stronger numbers.

SBA Loan Through Fundera

In the world of small business financing, SBA loans are often considered the best of the best. Intermediary lenders (like banks and CDFIs) disburse SBA loan funds, but the U.S. Small Business Administration guarantees up to 85% of the loan. That means if a borrower defaults, then the lender is guaranteed to recoup up to 85% of the missing amount. And with that added security, lenders can offer borrowers ideal terms, like high loan amounts and long repayment terms. Plus, the SBA sets a maximum interest rate that lender’s can’t exceed, which means the cost of your SBA loan is guaranteed to be as low as possible.

Just a heads up: SBA loan eligibility standards can be tough to meet. But if you think you have a shot at approval for an SBA loan, consider working with Fundera. We’re not a direct lender, but our team of in-house SBA specialists will help you package and submit your application to our network of partner lenders; and by leveraging our tech-forward solutions, we’ll guarantee that your application and credit decision goes through as quickly as possible.

Equipment Financing Through Balboa Capital

If you’re seeking a loan to help fund the expensive equipment your business needs to operate—like heavy machinery, software, or office furniture—look into Balboa Capital’s equipment financing programs.

Balboa Capital can provide business owners with up to $500,000 to lease their required equipment, which you’ll then pay back over a term ranging between 24 and 72 months. Balboa doesn’t require specific collateral to secure their equipment leases, and they’ll take all credit scores into consideration, making these loans much easier to qualify for than others. At a minimum, though, you will need to generate at least $300,000 in annual revenue and have a year in business under your belt in order for your Balboa Capital application to be considered.

Bear in mind that Balboa Capital offers equipment leasing programs, rather than equipment loans. Technically, Balboa Capital retains the title of the equipment, and you’ll pay for the use of that equipment over the life of your loan. At the end of your remittance schedule, you’ll have the option of purchasing that equipment for a low cost.

Like the other lenders we’ve recommended, Balboa Capital uses technology to make the application process as simple and fast as possible—in fact, after you’ve sent in your application, you may receive a credit decision in as little as an hour.

The Bottom Line on Connect2Capital

Connect2Capital may be an especially appealing service for small business owners operating in underserved communities, as the platform’s network of fellow CDFI lenders are dedicated toward providing just such businesses with financing and guidance. And although Connect2Capital doesn’t currently offer much in the way of testimonials, information, or marketing material explaining their services, it’s worth mentioning that CRF recently received a $2.7 million Activator Grant from the Wells Fargo Foundation. That certainly speaks to CRF’s legitimacy, as well as Connect2Capital’s potential growth.

Do know, however, that Connect2Capital’s lender network is not the only available option for business owners seeking financing. If you’ve been turned down for conventional financing, you can also consider a loan or lease through online lenders whose laxer eligibility standards allow for a more diverse pool of business owners to secure financing.

What Is General Liability Insurance?

General liability insurance protects your company from legal claims of bodily injury, property damage, and personal injury that arise from your business operations. You can purchase general liability coverage on its own, but it’s often packaged with property insurance as part of a business owner’s policy (BOP).

General liability insurance is one of the most important types of small business insurance. This insurance protects your business from claims of bodily injury, property damage, and personal injury that your business might have caused. For example, if someone sues after slipping and falling at your retail shop, general liability insurance will cover the costs of defending the lawsuit.

For the vast majority of small business owners, general liability insurance is a necessity. Without this type of coverage, a single lawsuit can devastate your business. You’ll need to buy enough coverage to match your level of exposure and decide if you want to add on any optional coverages to your standard general liability policy. Learn more how general liability insurance works, what it costs, and the best providers of this very important type of business insurance.

How General Liability Insurance Works

General liability insurance, also called business liability insurance or “slip and fall” insurance, protects your business from financial losses if you’re sued for causing bodily injury, personal injury, or property damage.

In the following types of scenarios, general liability insurance might be required:

Local governments might require general liability insurance from construction businesses and other businesses in specific industries.

A landlord might require liability insurance when you sign a commercial lease.

You might need to show proof of general liability insurance when applying for a business loan.

If you plan on contracting with other companies, it is likely they will require you to show proof of general liability insurance. This is the other company’s way of ensuring that your business can survive a liability claim and meet your end of the contract obligations.

Companies that have an office or store that’s open to the public or to clients should have general liability insurance. Even if you don’t have a brick and mortar location, general liability coverage is important. For example, you can still be sued if your advertising practices infringe on another business. And wherever you provide services from, you could inadvertently injure another person or someone else’s property. General liability insurance is designed to protect against such risks.

A Business Owner’s Policy Combines General Liability and Property Insurance

General liability insurance is typically the first line of defense when someone files a legal claim against your business. Although you can purchase general liability insurance on its own, it’s usually one part of a business owner’s policy (BOP).

BOPs vary among different insurance companies. However, a BOP typically combines general liability insurance and commercial property insurance. On top of these two essential coverages, some insurers will let you add business interruption insurance, cyber liability insurance, or professional liability insurance to a BOP.

The benefit of a BOP is convenience and affordability. Instead of having multiple insurance policies, potentially from different insurers, you have a single policy from one insurer. Since everything is one package, a BOP also lets you save money on premium costs.

What General Liability Insurance Covers

Most general liability insurance policies include standard forms published by the Insurance Services Office (ISO). The ISO provides advisory information and services to insurance companies. One way they help insurance companies is by drafting standard policy language. Most insurers use the standard ISO policy form for general liability insurance.

Under the ISO’s standard language, general liability insurance covers the following types of claims:

Bodily injuries

Medical payments

Property damage to other property (but not to the business’s own property)

Advertising injuries and reputational injuries, such as libel or slander

Most people think only of slip and falls when they think of general liability insurance, but the scope is broader than that. General liability insurance extends to a variety of claims arising from your business services and operations. Actions by you, your business partners, and employees are covered.

Here are some examples of what general liability insurance would cover:

Your employee is hanging a sign over your shop window. The sign falls and damages the property of a neighboring business. That business sues your company.

You run an online ad, and a competing business claims that you’ve used one of their trademark slogans and files a lawsuit against you.

In an interview, you answer a question about the president of a competing business. The competitor sues, claiming that you harmed their president’s reputation.

What General Liability Insurance Doesn’t Cover

General liability insurance offers pretty broad liability coverage for your company, but there are risks that it doesn’t cover. For these risks, there are different insurance products you can buy to protect yourself.

Professional negligence (but BOP): Negligence in providing professional services is covered by professional liability insurance, not general liability insurance. For example, if you’re a software engineer and your services cause a client’s website to crash and lose revenue, then the client could sue you for professional negligence.

Lost business income: When businesses have to close shop or scale back operations due to an unexpected event, it can cause a significant loss in income. This is covered by business interruption insurance.

Keep in mind that it’s possible to combine general liability insurance and some of these coverages in a BOP. A good insurance provider should understand your business’s specific risks and work with you to customize a general liability insurance policy.

General Liability Insurance Cost

The average cost of general liability insurance for small businesses was $741 per year in 2017, according to insurance comparison site Insureon. When you convert this into a monthly cost, it’s less than $62 per month.

Many factors affect the cost of general liability insurance, including:

Amount of coverage

Industry

Business location, revenue, size, and age

Claims history

Risk management efforts, such as whether you have alarms on company premises, training programs for your employees, and procedure checklists

Out of these factors, the first three will have the biggest impact on your premium cost. Mark Applegate, a Farmer’s Insurance agent, says, “A small attorneys office would pay around $500 for general liability insurance, but a retail store would probably pay triple that. Liability insurance cost is usually based on one of three things: square footage, gross sales, or payroll. A low risk business would usually be based on the square footage. A higher risk business like a retail store on gross sales, and an automotive garage on payroll for example.”

Landscapers, janitors, contractors, and other business owners who work on someone else’s property pay the most. If you know you’ll need to insure your business property, you can save money by purchasing a BOP that bundles liability and property insurance together at a lower rate. You should also take steps to secure your business, for example, by installing alarms and training employees. Doing so can potentially score you discounts on liability insurance.

How Much General Liability Insurance Coverage Do You Need?

The most common coverage option for general liability insurance is a $1 million / $2 million policy. That means that the insurer will pay up to $1 million for each covered claim, up to a total of $2 million while the policy is valid. This is sufficient coverage for most small businesses, though contractors or others that regularly work on someone else’s property might want to consider higher coverage limits. Businesses that need substantially higher coverage limits can buy excess liability insurance.

Don’t forget that most general liability policies come with a deductible for certain types of damages. This is an amount that you have to pay out of pocket for each covered incident before the insurance company will pay any benefits. The higher your deductible, the lower your premium will be.

Photo credit: Next Insurance

Where to Get General Liability Insurance: Best Insurance Providers for Small Business

Small businesses have many options to buy general liability insurance. Most small business owners opt to get an agent’s or broker’s help, which is a good way to go especially if you have custom insurance needs. An agent or broker can help you really understand the fine print of your policies so there aren’t any surprises if and when you need to file a claim. The downside is that using an agent or broker might raise your prices, and they might try to sell you on products you don’t need.

For the average business, it’s probably more cost-effective to go directly to an insurance company that you trust. Applegate says, “Some companies like Farmers Insurance… offer a discount on the owner’s personal auto and home insurance if they also insure [their business].”Alternatively, insurance comparison sites can play the role of a broker, letting you see how different insurance companies price your business risk.

Remember to make sure that any policy you eventually purchase is A-rated or higher by A.M. Best or another respectable credit firm. These ratings impact the insurer’s ability to pay out claims.

Here are the best providers of general liability insurance:

Hiscox

Hiscox is an A-rated insurance company that has decades of experience in business insurance. They sell a variety of business insurance products, including stand-alone general liability coverage and a BOP with several custom coverage options. Their general liability policy comes standard with electronic data liability coverage, important for IT consultants and others in the tech industry. It covers actions by full-time, part-time, and temporary employees. And Hiscox will cover your business for work that you perform anywhere in the world.

Hiscox offers business owners the option of purchasing coverage online or going through an independent insurance agent. Their liability insurance satisfies requirements of most standard contracts, so you’ll be covered if a vendor or client asks you to get professional liability coverage. You have the option to pay your entire premium up front (for a discount) or on a monthly basis.

Next Insurance

A+ rated Next Insurance is one of our top picks for buying general liability insurance. Ease and cost are the main value adds of Next Insurance. Answer some questions about your business, and choose your coverage limits to get an online quote for your general liability policy. If you’re happy with the coverage parameters, you can purchase the policy online.

Once you purchase a policy, you can view your proof of insurance, add additional insureds, and file claims online. Since everything can be handled online, Next Insurance offers the most affordable liability insurance rates 80% of the time. The primary downside to Next is that they currently don’t offer a BOP or separate property insurance. Also, liability insurance is not available in all states for all types of businesses.

CoverWallet

CoverWallet offers a different way to shop for insurance. Instead of working directly with an insurance company, you can use CoverWallet to get a general liability quote from several top-rated insurance companies. The beauty of this approach is that you can compare coverage and prices from multiple insurers and choose what works best for your business.

To get a quote, be ready to answer lots of details about your business’s finances, ownership and employees, and risk management processes. If you’re not sure about how much coverage you need, CoverWallet has a user-friendly tool that will tell you how much coverage similarly sized businesses in your industry purchased. After you view your quotes, a CoverWallet rep will contact you and help you decide which policy provides the best value. You can make premium payments, get proof of insurance, and access policy documents from your CoverWallet account. Depending on the policy, CoverWallet can also assist you in filing a claim.

Nationwide Insurance

Nationwide is an A+ rated insurance company that stands out for general liability coverage. In a ranking by J.D. Power, Nationwide beat out 10 other insurance companies, receiving high ratings for customer service, policy offerings, price, and overall satisfaction. General liability insurance is the baseline coverage that you’ll turn to for claims against your business, so it’s important that your interactions with the insurer are stress-free.

At Nationwide, you can opt for general liability insurance on its own or a BOP. Nationwide offers BOPs to businesses with less than $5 million in annual revenue, and fewer than 100 employees, whereas most insurers cap BOP eligibility at $1 million of annual revenue. Nationwide also offers several optional add-ons to their standard general liability policy to expand coverage. The main downside to Nationwide is that you can’t buy a policy online. It’s possible to get a quote online, but to purchase a policy, you’ll need to work with an agent or broker.

The Hartford

The Hartford is our last pick for general liability insurance. Though The Hartford, which is an A+ rated insurer, offers several types of small business insurance, their general liability insurance offers especially broad coverage. The Hartford covers standard property damage, bodily injury, personal injury, and medical payment claims. However, they also covers damage to rented property, which isn’t standard with all insurers. They also have specialty general liability insurance, which covers businesses in higher risk industries. Examples include manufacturers, wholesaler-distributors, and importers.

You can fill out a form and get a quote on The Hartford’s website. To purchase the policy or for additional guidance in customizing a policy, you’ll need to call them.

The Bottom Line on General Liability Insurance

General liability insurance is a must-have for virtually every small business owner. The price of not having general liability insurance is often much higher than the cost of purchasing a policy. Think of general liability insurance as the first layer of business insurance that your company needs.

Based on what industry you’re in and the types of products or services that you sell, there will be additional risks that you need to insure against. General liability insurance is a good place to start to protect your small business against the unexpected.

]]>This just might be the worst tax-filing status to claimhttps://www.cnbc.com/2019/03/17/this-just-might-be-the-worst-tax-filing-status-to-claim.html
Sun, 17 Mar 2019 17:11:00 +0000guid_105794412Don't wait to file for an extension on your tax returnhttps://www.cnbc.com/2019/03/14/dont-wait-to-file-for-an-extension-on-your-tax-return.html
Thu, 14 Mar 2019 17:21:00 +0000guid_105791684The IRS has $1.4 billion in tax refunds waiting for people to claimhttps://www.cnbc.com/2019/03/14/the-irs-has-1point4-billion-in-tax-refunds-waiting-for-people-to-claim.html
Thu, 14 Mar 2019 13:23:00 +0000guid_105791716Wealthy parents in college admissions scam may face IRS wrathhttps://www.cnbc.com/2019/03/13/wealthy-parents-in-college-admissions-scam-may-face-irs-wrath.html
Wed, 13 Mar 2019 16:48:00 +0000guid_105791341Following these 4 tips can help shield you from tax return fraudhttps://www.cnbc.com/2019/03/11/4-tips-to-protect-yourself-against-tax-return-fraud-this-year.html
Wed, 13 Mar 2019 12:00:00 +0000guid_105780848Trump's budget could open this tax-free savings account to people on Medicarehttps://www.cnbc.com/2019/03/12/trumps-budget-could-open-this-tax-free-account-to-people-on-medicare.html
Tue, 12 Mar 2019 16:44:00 +0000guid_105788982That college scholarship may actually be subject to income taxhttps://www.cnbc.com/2019/03/11/you-might-owe-taxes-if-you-got-a-scholarship.html
Mon, 11 Mar 2019 18:54:00 +0000guid_1057868383 Reasons Why Your Business Needs a Virtual CFOhttps://alliedaccountants.com.au/3-reasons-why-your-business-needs-a-virtual-cfo/
Fri, 22 Feb 2019 02:46:44 +0000https://alliedaccountants.com.au/?p=1780Is your business in a position of growth? Do you find yourself stretched for time managing all aspects of your business? Are you finding it hard identifying and acting upon problem areas that present a risk to your income? If you answered yes to any or all of these three questions, you may be in need of a Chief Financial Officer (CFO). CFOs are specialists in providing strategic financial and business advice, adding value to your business that a standard accountant cannot do. Virtual CFOs...

Do you find yourself stretched for time managing
all aspects of your business?

Are you finding it hard identifying and acting upon problem areas that present a risk to your income?

If you answered yes to any or all of these three questions, you may be in need of a Chief Financial Officer (CFO). CFOs are specialists in providing strategic financial and business advice, adding value to your business that a standard accountant cannot do.

Virtual CFOs possess the expertise that guides
businesses through their growth phase. They have the same know-how as standard
CFOs, but are outsourced on a contractual basis. They are therefore the preferred
choice for small and medium-sized enterprises (SME) who wish to acquire this
service at an affordable price.

So why outsource for your financial needs? Here we have listed 3 reasons why your business needs a Virtual CFO.

Reduced Financial Risk

According to payscale.com, a full
time CFO has an average hourly rate of AU$59.79…

That’s AU$156,571 per
annum!

If you run a small business, I’m sure you just had
heart palpitations reading that. You’re aware that you need the crucial
financial skills of a CFO. However, being in the growth phase, offering such a
salary on a permanent basis is not something you are able to commit to.

Using a virtual CFO will be incredibly cost
effective for you, reducing the financial risk of hiring a full time Chief
Financial Officer, while maintaining the benefits.

Time Efficiency

With a Virtual CFO, you’ll be
getting a specialist where financial strategy is their expertise. They’ll focus
on your accounts so you can focus on your business.

Speaking from experience, when
Allied Business Accountants becomes responsible for analysing and reporting on
our client’s finances, we present to them a gift – and this gift is time.
This allows our clients to completely focus on managing their business as we
keep our eye on reducing costs and increasing efficiency.

What would you do with more time?

Focus on other crucial areas
of your business?

Finally get the chance to
have lunch at noon?

Go golfing?

The choice is yours, it’s your
time!

Increase Your Profits – Reduce
Your Tax

At Allied Business Accountants,
our Virtual CFOs are experts in;

–
Cash Flow Management

–
Financial Reporting

–
Risk Management

–
Business Planning

– Bookkeeping

–
Strategic business advice

When outsourcing for a Virtual CFO, you’re bringing
into your company someone with a wide range of skills, who can analyse your
business and tackle the toughest of issues.

Further, they are analysing your company with an
unbiased approach, free from any emotional investment that you yourself as an
owner may have to the business. This allows the Virtual CFO to work with
clarity and identify cost saving solutions that may not be obvious from the perspective
of an owner.

Quite simply, a Virtual CFO will help you increase
your profits and reduce your tax.

For more information on how a Virtual CFO can
benefit you, submit an enquiry now, and together we will grow your business as
a team.

[su_spacer size="10"]Welcome to our 2017-18 Budget summary. We have summarised all the relevant areas of the budget that apply to our business and investor clients along with a few other interesting areas of the budget.

Overseas investors have been very heavily impacted and the most surprising part of the budget is the increase in the property settlement tax by 2.5% to 12.5% but also the reduction of the threshold to $750,000. This means that an overseas investor will need to pay tax on a purchase of any property that exceeds $750,000.

The Government has also dealt the first blow to the much talked about negative gearing on investment properties. As their first step, deductions for travel to inspecting rental properties or collecting rent will cease. Based on recent history, with the removal of other offsets and deductions, you can expect further reductions in other areas in the future.

For Business

$20k immediate deduction extended for another year

Date of effect :

Extended until 30 June 2018

The $20,000 immediate deduction threshold for assets purchased by businesses with an aggregated turnover of under $10 million will be extended.

Assets costing $20,000* or more can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter. If the closing balance of the pool, adjusted for current year depreciation deductions (ie, these are added back), is less than $20,000 at 30 June 2018 then the remaining pool balance can be written off as well.

The instant asset write-off only applies to certain depreciable assets. There are some assets, like horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc., that don't qualify.

The current 'lock out' laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2018.

From 1 July 2018, the immediate deductibility threshold will revert back to $1,000.

* $20,000 exclusive of GST for GST registered businesses. $20,000 inclusive of GST for businesses not registered for GST.

Contractors in the courier and cleaning industries face greater compliance

Date of effect :

1 July 2018

The building industry has faced enhanced compliance and reporting for some time through the taxable payments reporting system. Now it's the turn of contractors in the courier and cleaning industry.

Businesses in these industries will need to collect information from 1 July 2018, with the first annual report required to be lodged in August 2019.

Under the taxable payments reporting system, businesses are required to report payments they make to contractors (individual and total for the year) to the ATO.

Who collects the GST on residential property & subdivisions

Date of effect :

1 July 2018

Under new integrity measures, property developers will no longer manage the GST on sales of newly constructed residential properties or new subdivisions. Instead, the Government will require purchasers to remit the GST directly to the ATO as part of the settlement process.

It seems that under current law (where the GST is included in the purchase price and the developer remits the GST to the ATO), some developers are failing to remit the GST to the ATO despite having claimed GST credits on their construction costs.

The Government expects that as most purchasers use conveyancing services to complete their purchase, they should experience minimal practical impact from these changes.

The practical effect for developers is that they will not have the GST they would have collected to assist with cashflow between the period between settlement and when they would normally remit it to the ATO.

Many new residential properties and subdivided lots are sold under the GST margin scheme which allows the developer to calculate the GST based on the difference between their purchase price and sale price rather than GST applying to the full sale proceeds. It is not clear how this will work under the proposed new rules and whether the purchaser will be able to rely on calculations performed by the developer to meet their obligations with the ATO.

Small business CGT concessions tightened

Date of effect :

1 July 2017

The small business CGT concessions will be tightened to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business.

The Government is concerned that some taxpayers are accessing the concessions for assets which are unrelated to their small business, for instance through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.

The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2 million or business assets less than $6 million. The higher small business entity turnover threshold of $10 million will not apply to these concessions.

Levy on businesses employing foreign workers on skilled visa

Date of effect :

March 2018

Businesses that employ foreign workers on certain skilled visas will pay a new levy that will be channelled into the Skilling Australians Fund. The new levies replace and increase the existing training benchmark financial obligations, generating an estimated $1.2 billion over 4 years.

For businesses with a turnover less than $10 million p.a.

Businesses with turnover of less than $10 million per year will make an upfront payment of $1,200 per visa per year for each employee on a Temporary Skill Shortage visa and make a one off payment of $3,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.

For businesses with a turnover of $10 million or more p.a.

Businesses with turnover of $10 million or more per year will be required to make an upfront payment of $1,800 per visa year for each employee on a Temporary Skill Shortage visa and make a one off payment of $5,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.

Small business CGT concessions tightened

Date of effect :

1 July 2017

The small business CGT (Capital Gains Tax) concessions will be tightened to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business.

The Government is concerned that some taxpayers are accessing the concessions for assets which are unrelated to their small business, for instance through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.

The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2 million or business assets less than $6 million. The higher small business entity turnover threshold of $10 million will not apply to these concessions.

Encouraging over 65's to downsize

Date of effect :

1 July 2018

If you are 65 or over, the Government will allow you to make a non-concessional contribution of up to $300,000 from the proceeds of selling your home from 1 July 2018.

This non-concessional contribution will be excluded from the existing age test, work test, and the $1.6 million balance threshold (but will not be exempt from the $1.6m transfer balance cap).

Interestingly, the Government is enabling "both members of a couple" to take advantage of the concession for the same home. So, if you have joint ownership of the property and meet the other criteria, both people can make a non-concessional contribution up to $300,000 ($600,000 per couple).

The measure will apply to sales of a principal residence owned for the past ten or more years.

Sale proceeds contributed to superannuation under this measure will count towards the Age Pension assets test.

First home owners to use super contributions to save for a deposit

Date of effect :

1 July 2017 - contributions

1 July 2018 – withdrawals

Under the First Home Super Savers Scheme, would-be first home owners will be able to withdraw voluntary contributions they make to super for a deposit. In practice, first home buyers will be able to save for a deposit by salary sacrificing into their superannuation fund over and above their normal compulsory superannuation contributions.

If the individual is self-employed or their employer will not allow contributions to be salary sacrificed the Government will allow these people to claim a deduction for voluntary contributions made under the scheme.

The Government will allow future voluntary contributions to superannuation made by first home buyers from 1 July 2017 to be withdrawn for a first home deposit, along with associated deemed earnings. The earnings that can be released will be calculated using a deemed rate of return based on the 90-day Bank Bill rate plus 3 percentage points (the same way the Shortfall Interest Charge is calculated).

Concessional contributions and earnings that are withdrawn will be taxed at marginal rates less a 30% offset. Combined with the existing concessional tax treatment of contributions and earnings, this is intended to provide an incentive that will enable first home buyers to build savings more quickly for a home deposit. In reality, the benefits of using the scheme could be relatively small for those on low income levels as salary sacrificing arrangements and additional deductions tend to be much more beneficial for those on higher incomes.

Under the measure, up to $15,000 per year and $30,000 in total can be contributed within existing caps. Withdrawals will be allowed from 1 July 2018 onwards. Both members of a couple can take advantage of this measure to buy their first home together.

It will be interesting to see how popular this scheme is with first home buyers. Some individuals may be wary of contributing additional funds into superannuation especially if they are not absolutely confident that they will be able to save a deposit for a home in the near future.

Deductibility of investment property travel costs to end

Date of effect :

From 1 July 2017

The days of writing-off the costs of travel to and from your residential investment property are about to end.The Government has moved to disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.

Depreciation deductions limited

Date of effect :

From 1 July 2017

Grandfathering from 7:30pm, 9 May 2017

The Government is concerned that some plant and equipment items in residential rental properties are being depreciated by successive investors in excess of their actual value. This measure will limit plant and equipment depreciation deductions to outlays actually incurred by residential rental property owners

Acquisitions of existing plant and equipment items will be reflected in the cost base for CGT purposes for subsequent investors.

Investors who directly purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim depreciation deductions over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property. The portion of the purchase price that reflects the value of these items will simply form part of the cost base of the property and will reduce capital gains made on future disposal of the property.

These changes apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties at 9 May 2017 (including contracts already entered into) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

Plant and equipment items are usually mechanical fixtures or those that can be 'easily' removed from a property such as dishwashers and ceiling fans.

Foreign investors charged for leaving properties vacant

Date of effect :

From 7:30PM (AEST) on 9 May 2017

Foreign owners of residential Australian property will incur a charge if their property is not occupied or genuinely available on the rental market for at least 6 months per year.

The charge will be levied annually and will be equivalent to the relevant foreign investment application fee imposed on the property at the time it was acquired by the foreign investor. The charge imposed is expected to be at least $5,000.

This measure will apply to foreign persons who make a foreign investment application for residential property from the Budget announcement, 7:30PM (AEST) on 9 May 2017. This suggests that the new rules do not appear to apply to existing properties.

Foreign resident CGT withholding rate increased and threshold reduced

Date of effect :

From 1 July 2017

When someone buys Australian real property (ie, land and buildings) they are currently required to remit 10% of the purchase price directly to the ATO as part of the settlement process unless the vendor provides a certificate from the ATO indicating that they are an Australian resident. These rules do not currently apply if the property is worth less than $2 million however that is about to change.

From 1 July 2017 the CGT withholding rate under these rules will increase by 2.5% to 12.5%.

Also, the CGT withholding threshold for foreign tax residents will reduce from $2 million to $750,000, capturing a much wider pool of taxpayers and property transactions.

Foreign ownership in new dwellings restricted

Date of effect :

From 7:30PM (AEST) on 9 May 2017

The cap will be a condition of New Dwelling Exemption Certificates from the night of the Budget announcement (7:30PM (AEST) on 9 May 2017). New Dwelling Exemption Certificates are granted to property developers and act as a pre-approval allowing the sale of new dwellings in a specified development to foreign persons without each foreign purchaser seeking their own foreign investment approval. The current certificates do not limit the amount of sales that may be made to foreign purchasers.

[su_spacer size="10"]Welcome to our 2017-18 Budget summary. We have summarised all the relevant areas of the budget that apply to our business and investor clients along with a few other interesting areas of the budget.

Overseas investors have been very heavily impacted and the most surprising part of the budget is the increase in the property settlement tax by 2.5% to 12.5% but also the reduction of the threshold to $750,000. This means that an overseas investor will need to pay tax on a purchase of any property that exceeds $750,000.

The Government has also dealt the first blow to the much talked about negative gearing on investment properties. As their first step, deductions for travel to inspecting rental properties or collecting rent will cease. Based on recent history, with the removal of other offsets and deductions, you can expect further reductions in other areas in the future.

For Business

$20k immediate deduction extended for another year

Date of effect :

Extended until 30 June 2018

The $20,000 immediate deduction threshold for assets purchased by businesses with an aggregated turnover of under $10 million will be extended.

Assets costing $20,000* or more can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter. If the closing balance of the pool, adjusted for current year depreciation deductions (ie, these are added back), is less than $20,000 at 30 June 2018 then the remaining pool balance can be written off as well.

The instant asset write-off only applies to certain depreciable assets. There are some assets, like horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc., that don't qualify.

The current 'lock out' laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2018.

From 1 July 2018, the immediate deductibility threshold will revert back to $1,000.

* $20,000 exclusive of GST for GST registered businesses. $20,000 inclusive of GST for businesses not registered for GST.

Contractors in the courier and cleaning industries face greater compliance

Date of effect :

1 July 2018

The building industry has faced enhanced compliance and reporting for some time through the taxable payments reporting system. Now it's the turn of contractors in the courier and cleaning industry.

Businesses in these industries will need to collect information from 1 July 2018, with the first annual report required to be lodged in August 2019.

Under the taxable payments reporting system, businesses are required to report payments they make to contractors (individual and total for the year) to the ATO.

Who collects the GST on residential property & subdivisions

Date of effect :

1 July 2018

Under new integrity measures, property developers will no longer manage the GST on sales of newly constructed residential properties or new subdivisions. Instead, the Government will require purchasers to remit the GST directly to the ATO as part of the settlement process.

It seems that under current law (where the GST is included in the purchase price and the developer remits the GST to the ATO), some developers are failing to remit the GST to the ATO despite having claimed GST credits on their construction costs.

The Government expects that as most purchasers use conveyancing services to complete their purchase, they should experience minimal practical impact from these changes.

The practical effect for developers is that they will not have the GST they would have collected to assist with cashflow between the period between settlement and when they would normally remit it to the ATO.

Many new residential properties and subdivided lots are sold under the GST margin scheme which allows the developer to calculate the GST based on the difference between their purchase price and sale price rather than GST applying to the full sale proceeds. It is not clear how this will work under the proposed new rules and whether the purchaser will be able to rely on calculations performed by the developer to meet their obligations with the ATO.

Small business CGT concessions tightened

Date of effect :

1 July 2017

The small business CGT concessions will be tightened to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business.

The Government is concerned that some taxpayers are accessing the concessions for assets which are unrelated to their small business, for instance through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.

The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2 million or business assets less than $6 million. The higher small business entity turnover threshold of $10 million will not apply to these concessions.

Levy on businesses employing foreign workers on skilled visa

Date of effect :

March 2018

Businesses that employ foreign workers on certain skilled visas will pay a new levy that will be channelled into the Skilling Australians Fund. The new levies replace and increase the existing training benchmark financial obligations, generating an estimated $1.2 billion over 4 years.

For businesses with a turnover less than $10 million p.a.

Businesses with turnover of less than $10 million per year will make an upfront payment of $1,200 per visa per year for each employee on a Temporary Skill Shortage visa and make a one off payment of $3,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.

For businesses with a turnover of $10 million or more p.a.

Businesses with turnover of $10 million or more per year will be required to make an upfront payment of $1,800 per visa year for each employee on a Temporary Skill Shortage visa and make a one off payment of $5,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.

Small business CGT concessions tightened

Date of effect :

1 July 2017

The small business CGT (Capital Gains Tax) concessions will be tightened to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business.

The Government is concerned that some taxpayers are accessing the concessions for assets which are unrelated to their small business, for instance through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.

The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2 million or business assets less than $6 million. The higher small business entity turnover threshold of $10 million will not apply to these concessions.

Encouraging over 65's to downsize

Date of effect :

1 July 2018

If you are 65 or over, the Government will allow you to make a non-concessional contribution of up to $300,000 from the proceeds of selling your home from 1 July 2018.

This non-concessional contribution will be excluded from the existing age test, work test, and the $1.6 million balance threshold (but will not be exempt from the $1.6m transfer balance cap).

Interestingly, the Government is enabling "both members of a couple" to take advantage of the concession for the same home. So, if you have joint ownership of the property and meet the other criteria, both people can make a non-concessional contribution up to $300,000 ($600,000 per couple).

The measure will apply to sales of a principal residence owned for the past ten or more years.

Sale proceeds contributed to superannuation under this measure will count towards the Age Pension assets test.

First home owners to use super contributions to save for a deposit

Date of effect :

1 July 2017 - contributions

1 July 2018 – withdrawals

Under the First Home Super Savers Scheme, would-be first home owners will be able to withdraw voluntary contributions they make to super for a deposit. In practice, first home buyers will be able to save for a deposit by salary sacrificing into their superannuation fund over and above their normal compulsory superannuation contributions.

If the individual is self-employed or their employer will not allow contributions to be salary sacrificed the Government will allow these people to claim a deduction for voluntary contributions made under the scheme.

The Government will allow future voluntary contributions to superannuation made by first home buyers from 1 July 2017 to be withdrawn for a first home deposit, along with associated deemed earnings. The earnings that can be released will be calculated using a deemed rate of return based on the 90-day Bank Bill rate plus 3 percentage points (the same way the Shortfall Interest Charge is calculated).

Concessional contributions and earnings that are withdrawn will be taxed at marginal rates less a 30% offset. Combined with the existing concessional tax treatment of contributions and earnings, this is intended to provide an incentive that will enable first home buyers to build savings more quickly for a home deposit. In reality, the benefits of using the scheme could be relatively small for those on low income levels as salary sacrificing arrangements and additional deductions tend to be much more beneficial for those on higher incomes.

Under the measure, up to $15,000 per year and $30,000 in total can be contributed within existing caps. Withdrawals will be allowed from 1 July 2018 onwards. Both members of a couple can take advantage of this measure to buy their first home together.

It will be interesting to see how popular this scheme is with first home buyers. Some individuals may be wary of contributing additional funds into superannuation especially if they are not absolutely confident that they will be able to save a deposit for a home in the near future.

Deductibility of investment property travel costs to end

Date of effect :

From 1 July 2017

The days of writing-off the costs of travel to and from your residential investment property are about to end.The Government has moved to disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.

Depreciation deductions limited

Date of effect :

From 1 July 2017

Grandfathering from 7:30pm, 9 May 2017

The Government is concerned that some plant and equipment items in residential rental properties are being depreciated by successive investors in excess of their actual value. This measure will limit plant and equipment depreciation deductions to outlays actually incurred by residential rental property owners

Acquisitions of existing plant and equipment items will be reflected in the cost base for CGT purposes for subsequent investors.

Investors who directly purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim depreciation deductions over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property. The portion of the purchase price that reflects the value of these items will simply form part of the cost base of the property and will reduce capital gains made on future disposal of the property.

These changes apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties at 9 May 2017 (including contracts already entered into) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

Plant and equipment items are usually mechanical fixtures or those that can be 'easily' removed from a property such as dishwashers and ceiling fans.

Foreign investors charged for leaving properties vacant

Date of effect :

From 7:30PM (AEST) on 9 May 2017

Foreign owners of residential Australian property will incur a charge if their property is not occupied or genuinely available on the rental market for at least 6 months per year.

The charge will be levied annually and will be equivalent to the relevant foreign investment application fee imposed on the property at the time it was acquired by the foreign investor. The charge imposed is expected to be at least $5,000.

This measure will apply to foreign persons who make a foreign investment application for residential property from the Budget announcement, 7:30PM (AEST) on 9 May 2017. This suggests that the new rules do not appear to apply to existing properties.

Foreign resident CGT withholding rate increased and threshold reduced

Date of effect :

From 1 July 2017

When someone buys Australian real property (ie, land and buildings) they are currently required to remit 10% of the purchase price directly to the ATO as part of the settlement process unless the vendor provides a certificate from the ATO indicating that they are an Australian resident. These rules do not currently apply if the property is worth less than $2 million however that is about to change.

From 1 July 2017 the CGT withholding rate under these rules will increase by 2.5% to 12.5%.

Also, the CGT withholding threshold for foreign tax residents will reduce from $2 million to $750,000, capturing a much wider pool of taxpayers and property transactions.

Foreign ownership in new dwellings restricted

Date of effect :

From 7:30PM (AEST) on 9 May 2017

The cap will be a condition of New Dwelling Exemption Certificates from the night of the Budget announcement (7:30PM (AEST) on 9 May 2017). New Dwelling Exemption Certificates are granted to property developers and act as a pre-approval allowing the sale of new dwellings in a specified development to foreign persons without each foreign purchaser seeking their own foreign investment approval. The current certificates do not limit the amount of sales that may be made to foreign purchasers.

Your business has every right to arrange its financial affairs in order to minimise the tax you pay, and this process is called tax planning. But if you run a business that turns over more than $200-250,000 a year and you don't tax plan, you are at a major competitive disadvantage when compared to your more sophisticated rivals. Here's why:

How can you expect to effectively compete with businesses who are implementing superior tax planning strategies, ones that effectively leave them with more money to invest in finding new customers, or buying new technology that makes them more efficient?

In a competitive market, these kinds of initiatives make differences to critical issues like 'speed of turnaround', the quality of your work, the price of production and your capacity to market your products, in other words, all the critical points that determine your competitive position.

You have to pay tax, it can't be avoided. So doesn't it make sense to use better tax planning to arrange your financial affairs in a manner that is strategically advantageous, especially when it can mean the difference between your capacity to compete effectively with your fiercest competitors, or not?

There are two primary reasons why Businesses Fail to Tax Plan.

What we are revealing below is based on our experience gained from working with business clients for over 15 years. We have found that there are two primary reasons why businesses fail to tax plan.

1. Their accountants don't speak to them about it. In short, they don't get appropriate advice! (That's why we said it's not your fault in the title of this post). This should never happen, but unfortunately it does. You might be wondering, what circumstances cause this to happen? Sometimes this happens because…

2. When looking for an accountant, many businesses have the wrong mindset. If your one and only concern when looking for an accountant is to try and get your tax done as cheaply as possible, let me assure you, you will not find an accountant with the knowledge and experience necessary to help you with proper tax planning.

What you will get is someone with the minimum amount of knowledge required to do your tax, who's only concern is to process your tax return as quickly as possible, most likely, after the event. Real tax planning will not even be a consideration.

Let's be crystal clear about this. Tax planning after the event is nonsense! How can you "plan" for something that has already passed? It's really a tax post-mortem, not a tax plan, and the problem with it is that it leaves you with very few options.

There are literally hundreds of tax planning strategies you can implement prior to the end of the financial year, but there are only a few you can implement after it's ended!

The best time to start tax planning is well before the end of the financial year (between March and early June).

Tax Plans, they are as Different as Every Business.

Many business owners believe that business tax planning is a simple one size fits all thing. This could not be a more erroneous assumption. No two businesses are alike, even when they are in the same industry, and that means that although there are certain basic structures and strategies that may work for you in your current circumstances, the manner in which they are executed will be critical to maximising your tax position.

Here are some really simple strategies that are available. Which one would be best for you depends on whether your business is a sole trader, partnership, company, trust and/or if you are considered as a small business taxpayer under the relevant guidelines?

Simple tax strategies include:

- Paying business expenses prior to the end of financial year

- Purchasing assets that can be depreciated (most small business can claim an upfront deduction for assets costing less than $20,000)

- Writing off any assets that are no longer used or have been disposed of.

- Choosing the best method to value stock (stock on hand at the end of year is assessable)

Tax Planning How to Go About it

As mentioned, it's is important to ensure that you have your accountant prepare tax planning for your business well in advance the end of the financial year (between March and early June) and review your business needs in order to identify:

• Your current business structure, its deficiencies and the improvements and opportunities available, including options of making changes to your business structure based on the ever-changing taxation landscape.

• Your current profitability and significant business ratios

• Capitalising on expected tax breaks that are available and planning appropriately for future business expectations

We have found that the actions that can be taken in the course of just one day, from a tax planning perspective, can have lasting impacts on the tax position of your business for a number of years to come, and this can make a very significant difference to the competitive position of your business!

The Role of Forecasting & Business Planning

At Dendra we have developed a process of effectively and efficiently determining your most advantageous tax saving opportunities prior to the end of the financial year.

This process has two big advantages:

1. Firstly, it enables us to calculate (with a high degree of certainty) how much tax you will need to pay for the year, so there are no unexpected surprises and you don't miss out on any tax savings that may be available to you,

2. It also allows us to look at your choices and options and present them to you, in other words, we can make recommendations and if you see the sense in them, we can make adjustments to your financial situation prior to the end of the financial year.

Armed with this information, you'll have all you need to make the best decisions and as mentioned, this can have a significant bearing on your capacity to compete more effectively in your market.

Implications of Tax Planning on Your Choice of Accountant

Not planning your tax strategy prior to the end of the financial year is effectively not tax planning, it's a tax post mortem, and it leaves you with few options and can often throw up unpleasant surprises.

If the question you have been asking yourself when looking for an accountant is not "how can I get my tax done cheaper," you're asking the wrong question. You should be asking yourself, "is my accountant experienced and knowledgeable enough to help me maximise my financial and strategic position through proper tax planning." This is in fact why you have an accountant.

Where might your business be at the end of next year, or even more importantly, in five years, if you structure your tax in such a way that you are able to make the investments you know you should be making, but have been putting off because you think you can't afford them? Proper tax planning often reveals that you actually can afford to make them, and this can turn out to be the competitive advantage that propels your business ahead.

If you would like independent expert advice on tax planning, contact Dendra.

Your business has every right to arrange its financial affairs in order to minimise the tax you pay, and this process is called tax planning. But if you run a business that turns over more than $200-250,000 a year and you don't tax plan, you are at a major competitive disadvantage when compared to your more sophisticated rivals. Here's why:

How can you expect to effectively compete with businesses who are implementing superior tax planning strategies, ones that effectively leave them with more money to invest in finding new customers, or buying new technology that makes them more efficient?

In a competitive market, these kinds of initiatives make differences to critical issues like 'speed of turnaround', the quality of your work, the price of production and your capacity to market your products, in other words, all the critical points that determine your competitive position.

You have to pay tax, it can't be avoided. So doesn't it make sense to use better tax planning to arrange your financial affairs in a manner that is strategically advantageous, especially when it can mean the difference between your capacity to compete effectively with your fiercest competitors, or not?

There are two primary reasons why Businesses Fail to Tax Plan.

What we are revealing below is based on our experience gained from working with business clients for over 15 years. We have found that there are two primary reasons why businesses fail to tax plan.

1. Their accountants don't speak to them about it. In short, they don't get appropriate advice! (That's why we said it's not your fault in the title of this post). This should never happen, but unfortunately it does. You might be wondering, what circumstances cause this to happen? Sometimes this happens because…

2. When looking for an accountant, many businesses have the wrong mindset. If your one and only concern when looking for an accountant is to try and get your tax done as cheaply as possible, let me assure you, you will not find an accountant with the knowledge and experience necessary to help you with proper tax planning.

What you will get is someone with the minimum amount of knowledge required to do your tax, who's only concern is to process your tax return as quickly as possible, most likely, after the event. Real tax planning will not even be a consideration.

Let's be crystal clear about this. Tax planning after the event is nonsense! How can you "plan" for something that has already passed? It's really a tax post-mortem, not a tax plan, and the problem with it is that it leaves you with very few options.

There are literally hundreds of tax planning strategies you can implement prior to the end of the financial year, but there are only a few you can implement after it's ended!

The best time to start tax planning is well before the end of the financial year (between March and early June).

Tax Plans, they are as Different as Every Business.

Many business owners believe that business tax planning is a simple one size fits all thing. This could not be a more erroneous assumption. No two businesses are alike, even when they are in the same industry, and that means that although there are certain basic structures and strategies that may work for you in your current circumstances, the manner in which they are executed will be critical to maximising your tax position.

Here are some really simple strategies that are available. Which one would be best for you depends on whether your business is a sole trader, partnership, company, trust and/or if you are considered as a small business taxpayer under the relevant guidelines?

Simple tax strategies include:

- Paying business expenses prior to the end of financial year

- Purchasing assets that can be depreciated (most small business can claim an upfront deduction for assets costing less than $20,000)

- Writing off any assets that are no longer used or have been disposed of.

- Choosing the best method to value stock (stock on hand at the end of year is assessable)

Tax Planning How to Go About it

As mentioned, it's is important to ensure that you have your accountant prepare tax planning for your business well in advance the end of the financial year (between March and early June) and review your business needs in order to identify:

• Your current business structure, its deficiencies and the improvements and opportunities available, including options of making changes to your business structure based on the ever-changing taxation landscape.

• Your current profitability and significant business ratios

• Capitalising on expected tax breaks that are available and planning appropriately for future business expectations

We have found that the actions that can be taken in the course of just one day, from a tax planning perspective, can have lasting impacts on the tax position of your business for a number of years to come, and this can make a very significant difference to the competitive position of your business!

The Role of Forecasting & Business Planning

At Dendra we have developed a process of effectively and efficiently determining your most advantageous tax saving opportunities prior to the end of the financial year.

This process has two big advantages:

1. Firstly, it enables us to calculate (with a high degree of certainty) how much tax you will need to pay for the year, so there are no unexpected surprises and you don't miss out on any tax savings that may be available to you,

2. It also allows us to look at your choices and options and present them to you, in other words, we can make recommendations and if you see the sense in them, we can make adjustments to your financial situation prior to the end of the financial year.

Armed with this information, you'll have all you need to make the best decisions and as mentioned, this can have a significant bearing on your capacity to compete more effectively in your market.

Implications of Tax Planning on Your Choice of Accountant

Not planning your tax strategy prior to the end of the financial year is effectively not tax planning, it's a tax post mortem, and it leaves you with few options and can often throw up unpleasant surprises.

If the question you have been asking yourself when looking for an accountant is not "how can I get my tax done cheaper," you're asking the wrong question. You should be asking yourself, "is my accountant experienced and knowledgeable enough to help me maximise my financial and strategic position through proper tax planning." This is in fact why you have an accountant.

Where might your business be at the end of next year, or even more importantly, in five years, if you structure your tax in such a way that you are able to make the investments you know you should be making, but have been putting off because you think you can't afford them? Proper tax planning often reveals that you actually can afford to make them, and this can turn out to be the competitive advantage that propels your business ahead.

If you would like independent expert advice on tax planning, contact Dendra.

Purchasing property? You may be required to withhold tax from the purchase price.

New rules for foreign resident capital gains withholding (FRCGW) apply to vendors disposing of certain taxable property under contracts entered into from 1 July 2017. The changes will apply to disposals where the contract price for a property is $750,000 and above (previously $2 million) and the withholding tax rate will be 12.5% up from 10%. The previous threshold and rate will apply to any contracts entered into from 1 July 2016 but before 1 July 2017, even if they are not due to settle until after 1 July 2017. For vendors who are selling a property, to ensure that tax is not withheld on the property, you must apply for a tax clearance certificate prior to the settlement date.

Changes to deductions for personal superannuation contributions

Prior to 1 July 2017, for an individual who earned income from salary or wages were unable to claim a deduction for personal superannuation contributions if more than 10% of their income was from salary and wages. From 1 July 2017, this 10% rule has been scrapped which effectively means that most people under the age of 75 will be able to claim a tax deduction for personal super contributions.

Company Rates of Tax – 2016/17

A reduced corporate tax rate of 27.5% applies for the 2017 income year (which is a 1% reduction from 28.5% for the 2016 income year) to a company that is a Small Business Entity (SBE). In the 2017 income year, a company is an SBE if it carries on business and has an aggregated annual turnover of less than $10 million ( a increase from the $2 million threshold in place for the 2016 income year).

Purchasing property? You may be required to withhold tax from the purchase price.

New rules for foreign resident capital gains withholding (FRCGW) apply to vendors disposing of certain taxable property under contracts entered into from 1 July 2017. The changes will apply to disposals where the contract price for a property is $750,000 and above (previously $2 million) and the withholding tax rate will be 12.5% up from 10%. The previous threshold and rate will apply to any contracts entered into from 1 July 2016 but before 1 July 2017, even if they are not due to settle until after 1 July 2017. For vendors who are selling a property, to ensure that tax is not withheld on the property, you must apply for a tax clearance certificate prior to the settlement date.

Changes to deductions for personal superannuation contributions

Prior to 1 July 2017, for an individual who earned income from salary or wages were unable to claim a deduction for personal superannuation contributions if more than 10% of their income was from salary and wages. From 1 July 2017, this 10% rule has been scrapped which effectively means that most people under the age of 75 will be able to claim a tax deduction for personal super contributions.

Company Rates of Tax – 2016/17

A reduced corporate tax rate of 27.5% applies for the 2017 income year (which is a 1% reduction from 28.5% for the 2016 income year) to a company that is a Small Business Entity (SBE). In the 2017 income year, a company is an SBE if it carries on business and has an aggregated annual turnover of less than $10 million ( a increase from the $2 million threshold in place for the 2016 income year).

George Kontominas the Principal Accountant at Dendra Accounting Group, has won the 2017 Accounting Award for Partner of the Year in Victoria.

The SMSF Accounting Awards is the first state-wide industry awards program recognising excellence in the SMSF (Self Managed Super Fund) accounting and consulting professions, judged on state-based performance criteria.

These awards acknowledge individuals and businesses providing leading accounting and consulting services in their state, while maintaining the highest standards of professionalism, as well as bringing innovation to their service offering.

The Judging panel for the SMSF & Accounting awards includes top academics in the field of Accounting from leading Universities including RMIT, Macquarie & Deakin University, as well as industry thought leaders and top executives in the Finance and Accounting Industry in Australia.

Speaking after receiving the award for Partner of the Year, George Kontominas acknowledged his colleagues and lauded their contribution to the progressive culture that he has built at his firm Dendra Accounting Group.

"I'm proud to be acknowledged as the Partner of the Year, and for building and leading such a strong team of experienced practitioners and enthusiastic graduates who value the fact that the processes and procedures we use to help our client's differ significantly from the way typical accounting firms do things" he said.

Dendra are different to the average accounting firm because they use an innovative team based approach to account management, which means their entire team of accountants collaborate with each other to brainstorm client accounts. This means clients don't just get one accountant, they get a team that includes specialist from different fields collaborating on their account, identifying every possible angle or advantage that can be used to benefit their situation.

This team based account management approach sets Dendra apart from every other Melbourne accountant, and helped them produce some.exceptional results for their clients in 2017.

This team based account management approach sets Dendra apart from every other Melbourne accountant, and helped them produce some.exceptional results for their clients in 2017.

Musing about the journey from opening the firm doors till now, Kontominas said "Back in 2002 when I stepped out on my own, my main reason for doing so was because I didn't like the way that clients were treated by typical Accounting firms, that is, like a number. At that time, I was working for a second tier accounting firm and I felt my work was factory like, there was no innovation, no room for personalisation, and as a result the best I could do was produce mediocre outcomes. I didn't go through 6 years of higher education just to treat people's financial situations like components in a production line. I wanted the freedom to use my skills to really help people, which is what drove me to take the plunge to step out on my own and build the unique culture we now have at Dendra."

"I'm so proud to be acknowledged with this award, it feels like the completion of a journey and a vindication for standing for something better" he said.

"At Dendra, we are not your typical run of the mill compliance accountants. I encourage my entire team to learn more about the ins and outs of our client's situation, and then analyse their processes to help them find greater efficiency and better ways of achieving their goals.

"To my team I say thank you for being such a dynamic, pro-active and forward-looking team of accountants, people that strive to stay ahead of technology and that value innovation and creative thinking, which we are constantly applying to our own and our clients' businesses, to create improved performance and productivity, and most importantly, above average growth in our client's businesses and investments".

George Kontominas the Principal Accountant at Dendra Accounting Group, has won the 2017 Accounting Award for Partner of the Year in Victoria.

The SMSF Accounting Awards is the first state-wide industry awards program recognising excellence in the SMSF (Self Managed Super Fund) accounting and consulting professions, judged on state-based performance criteria.

These awards acknowledge individuals and businesses providing leading accounting and consulting services in their state, while maintaining the highest standards of professionalism, as well as bringing innovation to their service offering.

The Judging panel for the SMSF & Accounting awards includes top academics in the field of Accounting from leading Universities including RMIT, Macquarie & Deakin University, as well as industry thought leaders and top executives in the Finance and Accounting Industry in Australia.

Speaking after receiving the award for Partner of the Year, George Kontominas acknowledged his colleagues and lauded their contribution to the progressive culture that he has built at his firm Dendra Accounting Group.

"I'm proud to be acknowledged as the Partner of the Year, and for building and leading such a strong team of experienced practitioners and enthusiastic graduates who value the fact that the processes and procedures we use to help our client's differ significantly from the way typical accounting firms do things" he said.

Dendra are different to the average accounting firm because they use an innovative team based approach to account management, which means their entire team of accountants collaborate with each other to brainstorm client accounts. This means clients don't just get one accountant, they get a team that includes specialist from different fields collaborating on their account, identifying every possible angle or advantage that can be used to benefit their situation.

This team based account management approach sets Dendra apart from every other Melbourne accountant, and helped them produce some.exceptional results for their clients in 2017.

This team based account management approach sets Dendra apart from every other Melbourne accountant, and helped them produce some.exceptional results for their clients in 2017.

Musing about the journey from opening the firm doors till now, Kontominas said "Back in 2002 when I stepped out on my own, my main reason for doing so was because I didn't like the way that clients were treated by typical Accounting firms, that is, like a number. At that time, I was working for a second tier accounting firm and I felt my work was factory like, there was no innovation, no room for personalisation, and as a result the best I could do was produce mediocre outcomes. I didn't go through 6 years of higher education just to treat people's financial situations like components in a production line. I wanted the freedom to use my skills to really help people, which is what drove me to take the plunge to step out on my own and build the unique culture we now have at Dendra."

"I'm so proud to be acknowledged with this award, it feels like the completion of a journey and a vindication for standing for something better" he said.

"At Dendra, we are not your typical run of the mill compliance accountants. I encourage my entire team to learn more about the ins and outs of our client's situation, and then analyse their processes to help them find greater efficiency and better ways of achieving their goals.

"To my team I say thank you for being such a dynamic, pro-active and forward-looking team of accountants, people that strive to stay ahead of technology and that value innovation and creative thinking, which we are constantly applying to our own and our clients' businesses, to create improved performance and productivity, and most importantly, above average growth in our client's businesses and investments".

Over recent months, we have seen the ATO vigorously pursue individuals and small business for unpaid tax debts.

From 1 July 2017, the ATO will be able to disclose to the Credit Reporting Agencies the names of taxpayers who have unpaid taxation liabilities. This means that for businesses with tax debts, the true financial position of the business will become available to the public.

Ignoring the ATO can in some instances be to your detriment

At the outset, the threshold for this reporting will be restricted to those ABN's who have tax debts exceeding $10,000 and with the debt outstanding for at least 90 days. It is uncertain at this stage as to whether the ATO is obligated to notify the taxpayer in any way before reporting the debt to the CRBs.

How does it affect you?

For those business with large tax debts this will mean that your suppliers will have access to this information and may reassess their terms with you, potentially refusing to supply.

For those business who supply goods, you will now have access to this information about your customers and may need to reassess your terms with them if you feel necessary.

And for those businesses who want to borrow money, it is common knowledge the impact that a default on your credit listing has.

Worst case scenario – for businesses with large tax debts who are highly dependent on suppliers for the running of their business, this could potentially result in suppliers refusing trade credit and consequently the business failing as the business becomes unable to continue.

Can this be addressed?

If your business does fall into this tax liability category you should organise a payment arrangement with the ATO at the very least;

Consider the structuring of your business entity(ies);

If you're in the business of supplying goods, be aware that this information will soon become available to you and should be used when considering credit terms for your trade creditors.

Over recent months, we have seen the ATO vigorously pursue individuals and small business for unpaid tax debts.

From 1 July 2017, the ATO will be able to disclose to the Credit Reporting Agencies the names of taxpayers who have unpaid taxation liabilities. This means that for businesses with tax debts, the true financial position of the business will become available to the public.

Ignoring the ATO can in some instances be to your detriment

At the outset, the threshold for this reporting will be restricted to those ABN's who have tax debts exceeding $10,000 and with the debt outstanding for at least 90 days. It is uncertain at this stage as to whether the ATO is obligated to notify the taxpayer in any way before reporting the debt to the CRBs.

How does it affect you?

For those business with large tax debts this will mean that your suppliers will have access to this information and may reassess their terms with you, potentially refusing to supply.

For those business who supply goods, you will now have access to this information about your customers and may need to reassess your terms with them if you feel necessary.

And for those businesses who want to borrow money, it is common knowledge the impact that a default on your credit listing has.

Worst case scenario – for businesses with large tax debts who are highly dependent on suppliers for the running of their business, this could potentially result in suppliers refusing trade credit and consequently the business failing as the business becomes unable to continue.

Can this be addressed?

If your business does fall into this tax liability category you should organise a payment arrangement with the ATO at the very least;

Consider the structuring of your business entity(ies);

If you're in the business of supplying goods, be aware that this information will soon become available to you and should be used when considering credit terms for your trade creditors.

]]>Share dividend income and franking creditshttps://alliedaccountants.com.au/share-dividend-income-franking-credits/
Mon, 06 Mar 2017 04:12:11 +0000http://alliedaccountants.com.au/?p=1594Investors in receipt of dividends from their share portfolio often benefit from investing in shares because they usually have franking credits attached. As a general rule, an Australian resident shareholder is assessed for tax on dividends received plus any franking credits attached to those dividends. The shareholder is assessed on the “grossed-up” income and then allowed a “franking tax credit” in respect of the corporate tax paid by the company on the profits from which those dividends are paid. This system is referred to as...

]]>Investors in receipt of dividends from their share portfolio often benefit from investing in shares because they usually have franking credits attached.

As a general rule, an Australian resident shareholder is assessed for tax on dividends received plus any franking credits attached to those dividends.

The shareholder is assessed on the “grossed-up” income and then allowed a “franking tax credit” in respect of the corporate tax paid by the company on the profits from which those dividends are paid.

This system is referred to as the dividend imputation system.

This just means that the company attributes or assigns the underlying tax (imputes it) to the receiving shareholder. The dividend comes with a “franking credit” representing the company tax paid by the company on the profits underlying the dividend, which the shareholder can use to offset their own tax liability.

Dividends can be fully franked (that is, franking credits have been attached to 100% of the dividend paid), partly franked (franking credits have been attached to a portion of the dividend paid) or unfranked (no credits attached). Your dividend statement should spell out the percentage to which the dividend is franked.

Excess franking tax offsets are refundable to certain taxpayers (that is, individuals and superannuation funds). For a company, excess franking credits are not refundable, but may be converted into an equivalent tax loss and carried forward to use in a subsequent income year.

How it works

The following example illustrates how the dividend imputation system works and how you can benefit if you receive a franked dividend:

A company earned the following amount of taxable income and after tax profit:

Taxable income $15,000

Income tax paid (30% by the company) $4,500

After tax profit $10,500

The company tax paid resulted in the following entry in the franking account:

Franking credit $4,500

An individual shareholder of the company receives a fully franked dividend. The following table sets out the primary tax payable to shareholders on the dividend income at various tax rates (the example utilises the 2014-15 marginal tax rates to show the impact of the dividend at different marginal rates and ignores the Medicare levy). Note: The top marginal tax rate is 47% due to the imposition of the temporary budget repair levy.

As illustrated, those who are paying tax above the personal tax rate of 30% will need to pay “top up tax” on the dividend received – while those who pay tax below the personal tax rate of 30% will in most cases be entitled to a refund.

What about trusts and partnerships?

If a franked dividend is paid to a trust or partnership, the franking credit is “grossed-up” and included in the trust or partnership’s income. Each beneficiary or partner is typically entitled to utilise those credits based on their share of the net income (subject to satisfying a holding period rule, which stipulates that shares must be held “at risk” for at least 45 days – this rule may also apply to individuals).

For discretionary trusts, satisfying the holding period rule may entail the trust making a family trust election. Further, special rules apply in relation to ensuring the franked dividends can be streamed to beneficiaries (ask us to clarify if these situations apply to your case).

Where a company is in receipt of franked dividends, the franking credit is included in the recipient company’s assessable income and a franking credit tax offset is allowed (subject to the holding period rule). The franking credit is then credited to the recipient company’s franking account, available to be attached to the recipient company’s own frankable distributions.

Note also that companies in receipt of franked dividends cannot be entitled to a refund of franking credits where they are in a tax loss position. Any excess credits are to be converted into a tax loss for recoupment in later years.

Are franking credits always available?

Not always. Note that franking tax offsets can sometimes be denied or limited because the entitlement to franking tax offsets or a refund of franking credits is subject to certain rules (ask us for clarification), which can include:

the “qualified person” requirement

anti -avoidance rules, and

anti-streaming rules.

If shareholders do not qualify for a franking tax offset, they do not “gross-up” (include the imputation credit in assessable income) and are not entitled to a franking tax offset.

We will correctly account for your dividends and franking credits when we prepare your tax return – however, if you do have any questions, please contact us.

]]>FBT: What’s new for 2017?https://alliedaccountants.com.au/fbt-whats-new-2017/
Mon, 27 Feb 2017 20:52:45 +0000http://alliedaccountants.com.au/?p=1584Its coming up to that time of year again, the end of the Fringe Benefits Tax (FBT) year. It may be the least exciting of the of our ‘New Years’ that we celebrate, but lets have a look at whats new this FBT Year. The Rate The biggest impact to FBT, which carries over from the previous FBT year, is the continued application of a 49% rate. This is due to revert to 47% on April 1, 2017 (therefore applying for the 2017-18 FBT year...

]]>Its coming up to that time of year again, the end of the Fringe Benefits Tax (FBT) year. It may be the least exciting of the of our ‘New Years’ that we celebrate, but lets have a look at whats new this FBT Year.

The Rate

The biggest impact to FBT, which carries over from the previous FBT year, is the continued application of a 49% rate. This is due to revert to 47% on April 1, 2017 (therefore applying for the 2017-18 FBT year onwards), but for the current FBT year, 49% continues to apply.

Electronic devices

**This is a good change, and the most interesting**

One notable change is to the FBT treatment of portable electronic devices. Previously, the FBT exemption applied generally to only one work-related device per employee per FBT year. Unless this device was lost, stolen or destroyed, any subsequent devices (especially if they provided similar functions) were subject to FBT.

For the 2017 year (that is, from April 1, 2016), this limit of one has been lifted. Now, employees can be provided with multiple electronic devices, which will also be FBT exempt, regardless of whether these have substantially similar functions. Note however that the “work-related use” requirement still applies.

Meal entertainment

A single grossed-up cap of $5,000 applies to any salary packaged meal entertainment (and entertainment facility leasing expenses) for the 2017 FBT year. This sort of benefit can be provided through, for example, the use of a meal card in the case of the former, or the use of a sporting corporate box for the latter. Exceeding the cap will see FBT applied. The 50/50 method and 12-week register has also not been available from April 1, 2016.

Vehicle rates

The cents per kilometre rates for vehicles other than cars has increased. The rate of 52c applies for an engine capacity up to 2,500cc. Above that capacity the rate is 63c, and for motorbikes it is 16c.

LAFHA food and drink

And the living away from home allowance (LAFHA) reasonable food and drink amounts have increased. For the FBT year ending March 31, 2017, the weekly amounts are:

One adult

$242

Two adults

$363

Three adults

$484

One adult and one child

$303

Two adults and one child

$424

Two adults and two children

$485

Two adults and three children

$546

Three adults and one child

$545

Three adults and two children

$606

Four adults

$605

These amounts are for the total of food or drink expenses and include any amounts that may have been allowed for home consumption.

Car parking

A car parking fringe benefit arises on a day when car parking is provided in respect of employment (generally for more than 4 hours) where the commercial car park charges a representative fee of more than the daily fee threshold (as determined by the ATO) at the beginning of the FBT year.

Car parking daily fee thresholds are adjusted annually, and for the FBT year ending in March this year have been determined at $8.48. This is arrived at by applying CPI to the previous year’s threshold.

Non-remote housing values

The indexation factors for valuing non-remote housing has also increased. For the 2016-17 FBT year, they are:

New South Wales

1.025

Victoria

1.022

Queensland

1.013

South Australia

1.016

Western Australia

0.988

Tasmania

1.010

Northern Territory

0.997

Australian Capital Territory

0.978

Note for next year

Note also that from July 1, 2017, the way fringe benefits will be treated for the calculation of several tax offsets will change. The meaning of adjusted fringe benefits total has been modified so that the gross rather than the adjusted net value of reportable fringe benefits is used. Adjusted fringe benefits total is used to calculate entitlements for the low income superannuation tax offset, the seniors and pensioners tax offset, the net medical expenses tax offset and the dependent tax offsets.

]]>Tax and the sharing economyhttps://alliedaccountants.com.au/tax-sharing-economy/
Tue, 21 Feb 2017 21:56:48 +0000http://alliedaccountants.com.au/?p=1590The concept of a “sharing economy” has been around for long enough now to have had a very real impact on how our financial transactions are conducted. As for the taxation treatment of these transactions, the ATO has found it necessary to provide guidance. By now, most people will have realised that the “sharing” part of the concept does not refer to an absence of any monetary exchange, but rather to the use and access of shared physical or human resources or assets. The means...

]]>The concept of a “sharing economy” has been around for long enough now to have had a very real impact on how our financial transactions are conducted. As for the taxation treatment of these transactions, the ATO has found it necessary to provide guidance.

By now, most people will have realised that the “sharing” part of the concept does not refer to an absence of any monetary exchange, but rather to the use and access of shared physical or human resources or assets. The means of these transactions is usually conducted online, and there are many who therefore argue that rather than sharing economy a more accurate term that could or should have been adopted would be “access economy”.

For its part, the ATO states that it views the sharing economy as a system that “connects buyers (users) and sellers (providers) through a facilitator who usually operates an app or a website”.

The ATO identifies some popular sharing economy services in Australia as those that include:

renting out a room or a whole house or unit on a short-time basis

providing “taxi” travel services (or ride-sourcing) for a fare

providing personal services, such as creative or professional services like graphic design, creating websites, or odd jobs like deliveries and furniture assembly

renting out a car parking space.

The ATO says taxpayers who are involved with the sharing economy may need to consider:

if they are carrying on an enterprise,

if they need an ABN

if they need to register for GST and lodge activity statements

if the price of the goods or services provided includes GST

if and when they need to provide tax invoices for sales

if they need to declare this income in an income tax return

what GST credits and income tax deductions can be claimed for expenses related to earning income

how all their sharing economy activities added together affect their GST and income tax obligations.

For example, the ATO says that if you carry on an enterprise of providing ride-sourcing services, under the GST law you need an ABN, need to be registered for GST, and are required to account for GST on the full amount of every fare regardless of how much or how little you earn (as the GST registration threshold does not apply to ride-sourcing services, but starts from the first dollar). But you can also claim the business proportion of your input tax credits.

So while the GST registration threshold does not apply to ride-sourcing services, the ATO also considers that providing such a service would also mean you are running a small business as a sole trader. Therefore you’ll need to declare all the income earned from providing ride-sourcing services and can claim the expenses related to providing the services.

If you are selling goods or performing a service as a spare-time activity or pastime, which you pursue for pleasure or recreation, then the ATO states that it will view these activities as partaking in a hobby that does not have tax or reporting obligations.

GST and multiple enterprises

One of the more common sharing economy services is ride-sourcing, however the obligation to register for GST (no matter what the annual turnover is) can have an impact on subsequent tax obligations.

For example, the ATO says if you are registered for GST because you are already carrying on an enterprise, you must account for GST on all the sharing economy goods and services provided that are subject to GST. “For example, if you have an enterprise that provides ride-sourcing services, and have to get an ABN and register for GST regardless of your turnover, you would also have to account for GST on a car park you rented out.”

If you are providing goods and services across multiple websites or apps, or through other enterprises outside of the sharing economy, the ATO states that this would require an ABN and registration for GST when total turnover for all activities together is, or is expected to be, $75,000 or more per year.

Record keeping

Regardless of how much you earn, or the reasons for you providing goods or services, the ATO says you should keep records of income and expenses so we can keep track of your activities and assist with tax obligations when they arise. “You may intend to provide goods or services as a hobby or recreational pursuit,” the ATO says, “but your level of activity over the whole year may mean that you are in fact running a business and need to comply with income tax and GST obligations.”

]]>December Newsletterhttps://alliedaccountants.com.au/december-newsletter/
Sun, 04 Dec 2016 23:01:14 +0000http://alliedaccountants.com.au/?p=1569With the festive season close at hand, we look at the ways in which the spirit of giving can be extended in a tax effective way. We also look at the details we know so far about the new transfer balance account requirement for SMSFs, and the cap imposed on these accounts. And as the rules around the valuation of assets held under an SMSF have seen a lot of changes, we run over the more important points. Also dealt with is the luxury car...

]]>With the festive season close at hand, we look at the ways in which the spirit of giving can be extended in a tax effective way.

We also look at the details we know so far about the new transfer balance account requirement for SMSFs, and the cap imposed on these accounts. And as the rules around the valuation of assets held under an SMSF have seen a lot of changes, we run over the more important points.

Also dealt with is the luxury car tax, and the level of substantiation the ATO generally requires in regard to home office claims. Lastly we provide a brief run-down of FBT and a business’s Christmas party, with a handy “decision tree” flow chart.

]]>Extending the festive cheer (in a tax efficient way)https://alliedaccountants.com.au/extending-festive-cheer-tax-efficient-way/
Fri, 02 Dec 2016 05:04:00 +0000http://alliedaccountants.com.au/?p=1566The festive season is here again, and as with other years it is always brimming with the spirit of giving. The list of practical ways in which Australians spread goodwill is as endless as a Christmas wreath. The ATO also gets into the spirit of the season, but of course feels required to set some limits. When are donations deductible? A charitable donation is only tax deductible if it meets the requirements in the relevant legislation. In brief, the rules allow a taxpayer to claim...

]]>The festive season is here again, and as with other years it is always brimming with the spirit of giving. The list of practical ways in which Australians spread goodwill is as endless as a Christmas wreath. The ATO also gets into the spirit of the season, but of course feels required to set some limits.

When are donations deductible?

A charitable donation is only tax deductible if it meets the requirements in the relevant legislation. In brief, the rules allow a taxpayer to claim a deduction for a “gift” or for a “contribution” which satisfies certain conditions. While the deductibility criteria do vary, the common requirement across all types is that the recipient must be a “deductible gift recipient” (DGR).

A DGR is a non-profit entity that is legally entitled to receive tax-deductible donations. A DGR must be explicitly registered (or legislated) as such.

Common donations

Common examples of methods of giving include donating cash, being involved in fund raising events, taking part in a workplace giving program, donating goods or taking part in a “wishing tree” appeal, volunteering or offering professional services for free.

As noted, different conditions apply depending on the donation type – for example, some gifts must be over $2 in value, in other cases, there is a need to obtain a valuation (if goods are provided).

Consider these examples:

Example 1: Donating cash

Stephen’s son attends the local school. The school has launched a Christmas appeal for donations to fund a renovation. The school as a whole is not a DGR.

Stephen donates $500 in cash to the school’s building fund. However the building fund itself is endorsed as a DGR, so Stephen can deduct his gift of $500.

Stephen also donates $50 to his son’s school cricket team for new equipment. The cricket team is not a DGR (and neither is the school), so Stephen cannot deduct his gift of $50.

Example 2. Donating goods

Rosanna buys a new washing machine at the Boxing Day sales. Rosanna decides to donate her old washing machine, which she purchased four years ago, to a large charity (a DGR).

From online listings of similar secondhand washing machines for sale, she estimates that her old machine is worth approximately $300.

Rosanna cannot deduct the $300 market value of the gift. It does not meet any of the alternative deductibility conditions, which are that:

it is a gift of cash, or

it was purchased within the last 12 months, or

Rosanna can obtain an ATO valuation of more than $5,000.

Example 3. Volunteering

Marcus takes a week off work for Christmas and New Year. During that week, he spends each morning volunteering at a soup kitchen operated by a DGR. He drives to and from the soup kitchen. He pays for petrol for the week and for parking each morning.

Marcus cannot deduct his expenditures on petrol and parking. The payments are not gifts of cash or property that is actually gifted to the DGR, even though the expenditures enable him to fulfil his volunteer duties.

Marcus observes that the kitchen has insufficient cooking pots. He purchases a new boxed set of pots for $200 and donates it to the DGR’s representative at the soup kitchen the next day. The market value of each individual piece is more than $2.

Marcus can deduct $200 for his gift of boxed cooking pots that he makes to the DGR. It was purchased within the last 12 months and the value is not less than $2 (whether considered as a set or as individual items).

Example 4. Offering professional services for free

Owen is an IT contractor operating as a sole trader. He hears about a local charity (a DGR) that is replacing its outdated computer systems.

Owen helps the charity with its project during his Christmas break, using his IT expertise. He does not charge the charity any fees for his services. His contracting business receives no advertising, recognition or other benefit from his volunteer work.

Owen uses the same specialised skills and knowledge in his paid contract work. He estimates that his donated services would have earned him about $2,000 in contract income had he undertaken an equivalent project for a paying client.

However Owen cannot deduct the notional foregone income of $2,000 as a gift under tax legislation. The $2,000 is neither cash nor property that Owen gives to the DGR.

As a sole trader, Owen wonders whether he can claim the $2,000 as a business deduction, since it represents the market value of his professional skills that he uses in his ordinary business activities. However he cannot make such a deduction as the $2,000 is a notional loss only; it is not expenditure that Owen actually incurred.

Even if Owen did incur expenditures in his volunteer work (such as purchasing consumables), he would still be unable to claim the amounts. There is no connection between the expenditures and either the derivation of his assessable income or the carrying on of his business.

]]>Setting up an SMSF: What you need to knowhttps://alliedaccountants.com.au/setting-smsf-need-know/
Wed, 30 Nov 2016 04:16:49 +0000http://alliedaccountants.com.au/?p=1560There are tempting tax incentives for Australians to save for their retirement via the superannuation system, with an array of choice between superannuation funds that can manage your savings for you, but also the do-it-yourself option of a self-managed superannuation fund (SMSF). Managing your own retirement savings however is a huge responsibility and one that should not be viewed lightly. How you live and how comfortable your life will be when you’re no longer earning an income will depend largely on your efforts of saving...

]]>There are tempting tax incentives for Australians to save for their retirement via the superannuation system, with an array of choice between superannuation funds that can manage your savings for you, but also the do-it-yourself option of a self-managed superannuation fund (SMSF).

Managing your own retirement savings however is a huge responsibility and one that should not be viewed lightly.

How you live and how comfortable your life will be when you’re no longer earning an income will depend largely on your efforts of saving and the investment performance and management of your super fund. And while the hands-on aspect of setting yourself up with your own SMSF is a great way to take control of your retirement savings, this is not something that can be recommended for everyone.

There are strict rules and tangible risks to setting up an SMSF, but at the same time you can choose how to invest your fund’s money as well as having greater flexibility over your investment choices.

With an SMSF, you are responsible — you are the trustee of your own fund, you need to comply with the superannuation laws and regulations, and you wear the consequences of all your investment and compliance decisions.

The ATO asks all prospective SMSF trustees to consider the following aspects before deciding whether they should manage their own super.

Consider your options and seek professional advice

Two thirds of Australia’s pre-retiree population park their superannuation savings and direct their compulsory superannuation guarantee contributions (and any extra contributions into a large fund. These funds are pooled with the super of other members and professionally managed by the trustees of the fund.

If you set up an SMSF, you’re very much in charge – you make the investment decisions for the fund and you are responsible for complying with the law. And one thing that larger APRA-regulated funds may have over SMSFs is a compensation scheme for fraud.

Deciding whether to take the SMSF route depends on your personal situation, and this is certainly one instance where professional advice and the pursuit of adequate due diligence is time and money well spent before deciding.

If you do decide to set up an SMSF, make sure it’s for the right reason – saving for your retirement. Don’t set up an SMSF to try and get early access to your super, or to buy a holiday house or sports car. The ATO’s compliance (and penalty) regime has improved greatly since these sorts of stories were heard over the barbecue. These sorts of “investments” do not comply with superannuation law, and the ATO will come down hard on SMSFs toying with these activities.

Make sure you have enough assets, time and skills

You will need enough assets, time and skills to:

make investment decisions and formulate an investment strategy that you review regularly, and

meet all your legal obligations as a trustee.

As an SMSF trustee, your main responsibility is to ensure you have invested your fund’s money appropriately.

You will need to ask yourself if you are a confident and knowledgeable investor, and will the SMSF do as well as, or better than, other super funds after you’ve paid all costs? If you’re not confident you can get a better result, there is always the option of a retail or industry suer fund.

The cost of establishing and running an SMSF is contingent on the number of members in your fund (the law here rules that there can be no more than four) and the complexity of the arrangements, the extent to which you make use of professional service firms (an annual independent audit is compulsory), and how much of your own time you will have to spend running your fund. All SMSFs are also subject to an annual “supervisory levy” from the ATO, which is currently $259 for the 2016-17 financial year (or $518 for newly registered funds).

Time is another construct that is rarely talked about when considering SMSFs. It may take weeks or even months to set up an SMSF, depending on the institutions you are rolling over your incumbent super savings from.

Some of the steps involved in completing the setup of a new fund include applying for the fund’s Australian Business Number (ABN) and tax file number (TFN), setting up a bank account for your fund, deciding on (and documenting) an investment strategy and keeping on top of all administration tasks.

The amount of time required to manage an SMSF differs from person to person. For instance, some trustees enjoy buying and selling shares, which requires frequent monitoring of the share market. Other trustees prefer to invest in assets that do not require such close attention, like investment properties. And remember, this office can always help you with the administrative tasks like record keeping, tax and either conducting or providing guidance regarding the fund’s annual audit.

Don’t forget – you will also be required to stay up-to-date with the superannuation and tax laws, as well as other issues that will affect your fund, such as changes in interest rates and market conditions.

Understand the risks and laws

Last but not least, think carefully about your investment options and how you plan to manage the associated risks.

These include the objectives of the fund and considerations of the following:

investment risk

the age of members, and

the impact of loss in the fund.

Avoid risking all your retirement savings in one or a few investments. By spreading your investments – in other words, diversifying — you can help control the total risk of your investment portfolio.

But spreading your fund’s risk means investing not just in different stocks or sectors but also across different asset classes. Depending on the investment strategy in place, investment options might include cash accounts, term deposits, managed funds, listed Australian and international shares, listed property and direct property. That way, if one or more investments perform poorly, others may help cover those losses.

Super funds, including SMSFs, receive significant tax concessions as an incentive for members to save for their retirement. However, you need to follow the tax and superannuation laws to receive these concessions. And failing to toe the line can also result in significant penalties. These can be severe, ranging from $900 (for not providing certain information to the ATO) to $10,800 (for not notifying the ATO of “significant adverse events”).

The sole purpose test and other obligations

One overriding obligation that every SMSF must meet is to pass the “sole purpose test”, which basically means that the fund is legally required to be maintained for the sole purpose of providing benefits to each member on retirement, or to their dependants upon the member’s death. Compliance with this obligation is fundamental; straying from it can lead to severe penalties.

Another essential role of an SMSF trustee is to keep proper and accurate tax and superannuation records. It is always a good idea to keep accurate records, including taking minutes from meetings, of all investment decisions, including why a particular investment was chosen and that all trustees agreed with the particular decision.

Additionally, you have a legal obligation to have your SMSF independently audited every year. The annual audit will require certain records to be made available, and you may also need to provide other records to the ATO to keep your fund compliant.

If you set up or join an SMSF, you will also need to consider having adequate insurance in case you pass away or are unable to work because of an illness or accident. As an SMSF trustee, you are required to consider insurance cover for fund members as part of the fund’s investment strategy. However, it is not a requirement that such a policy be taken out. Life insurance can also be expensive compared to the large funds, which can buy group policies that enable them to offer insurance cover at a relatively low cost.

To ‘SMSF’ or not to ‘SMSF’?

If you decide to set up an SMSF, you’re legally responsible for all the decisions made, even if you get professional advice. Typically, an SMSF is suited for those who want greater control, but are also able to actively manage their investments while keeping up with the mandatory regulatory and compliance obligations.

Appropriate advice is highly advisable before taking the plunge. Being at the helm of an SMSF can be a very rewarding experience, and it offers innumerable benefits – from tax savings and greater estate planning certainty to more investment control and greater investment choices. Just be sure it is the option for you.

]]>Calling time out on your business? The tips and trapshttps://alliedaccountants.com.au/calling-time-business-tips-traps/
Wed, 23 Nov 2016 04:20:16 +0000http://alliedaccountants.com.au/?p=1556When you first went into business, either buying an established enterprise or starting from scratch, probably the last thing on your mind was the day you would close the door for the last time. Client calling time out business? The tips and traps But it’s no use ignoring the inevitable, as one day you will leave the business – whether through pursuing another career, retirement, or even due to health reasons. It’s important to know what’s involved, and having a succession or exit plan can...

]]>When you first went into business, either buying an established enterprise or starting from scratch, probably the last thing on your mind was the day you would close the door for the last time. Client calling time out business? The tips and traps
But it’s no use ignoring the inevitable, as one day you will leave the business – whether through pursuing another career, retirement, or even due to health reasons. It’s important to know what’s involved, and having a succession or exit plan can go a long way to smoothing the transition.

Tax loose ends
The sale of a going concern, as a continuing business, is generally GST free. But if in the process you separately sell “capital assets” (which are usually not intended for sale in the ordinary course of business but kept for the purpose of earning revenue), these will need to be accounted for.

You may be able to claim a deduction for many capital expenditures made in the process of winding-up the business, such as legal costs for terminating employees, or removing fixtures (that aren’t depreciating assets) or site rectification costs.

Capital gains tax will come into play of course, but don’t forget to account for any capital losses that may be lurking on the books. There are however various tax concessions available for the small business owner (see the details here), and if you are retiring, the profits from the sale of assets may be CGT-free.

If the business is being run from a company structure, getting the money out can also be problematic. You may need to engage a liquidator to get the money out tax effectively.

Retirement exemption on sale of business assets
Your superannuation fund could get a helpful boost if you’re selling a small business. If the proceeds of the sale of a business CGT asset are rolled over into a super fund, the capital gain is exempt from CGT – and this “retirement exemption” (one of the small business concessions mentioned above) applies to the gains made on the sales of as many business CGT assets as you like, subject to a total lifetime limit of $500,000.

It’s a way of encouraging people to prepare for their own retirement. And if you’re at least 55 years old, you don’t even need to put the money into a super fund to qualify for the tax exemption.

Taking care of staff
Of course ending a business, or selling it, will affect any staff. If you’re selling the whole business as a going concern, staff may be able to keep their jobs, but if you’re closing shop employees will need to know of all entitlements and payments owing. There are still legal obligations as an employer, which may include fringe benefits tax, PAYG instalments, compulsory super and perhaps eligible termination payments (ETPs), which are taxed differently to other types of payments made to someone who stops working for a business. There is an ETP calculator available that may help.

Registrations to cancel
Ultimately, as part of the process, you need to cancel your registrations with the ATO when you sell or cease trading. You are required to notify the Australian Business Register within 28 days of ceasing business to close your ABN. You can click here to apply to cancel registrations for the following:

Australian business number

goods and services tax

fuel tax credits

luxury car tax

pay-as-you-go (PAYG) withholding.

But before cancelling the ABN, it’s best to make sure all activity statements are lodged (even if there is “nil” to report) as well as PAYG withholding amounts. GST registration needs to be cancelled 21 days from ceasing trading, and the final activity statement will need to show any sales or purchases for that period (including the sale of the business, if applicable).

Your checklist
Tying off all the loose ends can be a process, and while it may seem impossible to cover absolutely every topic that will need your attention, here is a checklist to tick off (if applicable) when selling or closing your business.

Whilst we have outlined some of the things to consider when closing or selling your business, it is always import get professional advice to ensure you are not left short. If you are considering closing or selling your business, please contact us to discuss your options.

]]>Passing the family business to the next generationhttps://alliedaccountants.com.au/family-business-succession/
Wed, 16 Nov 2016 00:21:10 +0000http://alliedaccountants.com.au/?p=1552While it might be a tough topic to broach, it is inevitable that someday you will leave your business. You can’t know whether you’ll sell up, retire or leave due to health reasons, so is important that you prepare yourself for any eventuality. A recent nationwide survey by the Australian Centre for Family Business at Bond University found more than 40% of family businesses are looking to transfer their wealth and operations to other people in the next five years. But the survey also found...

]]>While it might be a tough topic to broach, it is inevitable that someday you will leave your business. You can’t know whether you’ll sell up, retire or leave due to health reasons, so is important that you prepare yourself for any eventuality.

A recent nationwide survey by the Australian Centre for Family Business at Bond University found more than 40% of family businesses are looking to transfer their wealth and operations to other people in the next five years. But the survey also found that most of the owners of those family businesses are not thinking about succession planning.

In an overwhelming majority, 93% of the survey’s respondents intend to transfer their business wealth within the family, but only 39% of respondents have a complete succession plan that nominates a chief executive successor. Research also shows that more than 65% of family businesses fail after having been passed to a second generation and another 20% fail when they’re passed on again.

The most common causes of business failure are:

a lack of management skills, and inadequate consideration and planning for the ownership transition

failure of parents to “let go”

the problem of the “insider and the outsider” which relates to a failure of the head of the business to share knowledge and decision-making with all relevant parties

the “disconnected shareholder” – that is, a dissatisfied family member who is not part of the decision-making hierarchy but constantly undermines authority and management, and

“fighting over the spoils” when family members look critically at what one is receiving from the business and comparing it to what another receives.

These worrying indicators themselves warrant a simple to-do checklist for family businesses considering succession planning in the next few years.

5 Family Business Succession Planning Considerations

1. Decide on who a successor should be

When choosing a successor from your family, think about what is best for the future of the business. Don’t let emotions cloud your judgement – understandably difficult, but vital. Also, be aware of the potential problems when choosing a family successor. Choosing just one may cause conflict if others are interested in taking over but if you appoint more than one successor, the business may be left without a clear leader.

Evaluate your situation by ensuring your successor has both the necessary skills and passion to take over the business – children, for example, should earn their right to be at the head of a business rather than having it handed to them as a mere birth right. A board of non-family members or an adviser may help provide an objective opinion.

Multi-generational family businesses often succeed when the decision to remain in business together is made by the children themselves, rather than the parents. Parents should continuously include their children in the decision-making process about succession and leave them to make their own decisions about their future prospects at a more appropriate time.

2. Train the successor

Owners of family businesses often make the fatal mistake of giving the business to their children or siblings with minimum notice and a lack of training. Succession planning is a systematic process, not a one-off incident – start teaching your successor about the business’ operations and finances. It takes years to get up to speed with everything.

Identify areas of expertise that are fundamental to your business and determine if your successor fits the bill. Conduct regular appraisals, give performance feedback and assign higher-level projects to prepare them for the tougher challenges they will face down the road.

learn about business through formal education and working outside the business

learn about the family business, in particular the family network and network management skills, and

learn to lead the family business by codifying knowledge and learning the tacit knowledge, training in operational and financial management, and thinking strategically in the business.

3. Work on a succession plan

A complete succession plan has to incorporate the core values of your business and should:

answer questions about who will be in charge, how much of a stake they will acquire and at what cost

include a shareholder or shareholders agreement

include an estate plan

include a timeline for the transfer of power

be known to all parties

include a valuation of the business. Such valuations require professional skills, given the intertwined nature of the business, the family, and the unique family factors that drive value

include a financial security plan for the founder, and

be in written form.

Also think about financial and legal issues such as:

Are you planning to gift or sell the business to your family?

Do you need to set up a trust as part of the succession?

Would you prefer to receive a regular dividend from the business or a lump sum?

Are there any legal or industry requirements to meet in relation to ownership of important positions?

If you sell your business to a family member, are you giving them a loan or are they acquiring a loan from a financial institution to pay for the business?

What are CGT implications of transferring interest in the business? Are there any concessions available?

Identify risks and common goals, potential conflicts and ask this office for assistance if necessary. Also consider if you need to transfer both ownership and management, if ownership will be equal among family members and if the management team should include non-family members.

You may have to continually revisit your plan, review and update it to reflect changes in business value, market conditions, your own health as well as the suitability of the successor you intend to pass it on to. Regularly review your plans with family to ensure they are aware of and happy with the development of the business.

4. Show your faith

If you do not show your confidence in the proposed successor and demonstrate to employees that you trust this nominated person to take over your business, your business is not likely to succeed after you’re gone. Ensure everyone knows who your successor is and how excited you are for her or him to take over the reins and develop the business. Do not force the successor to mimic your management style or business values.

5. Consider external options

If there is no one suitable within your business or family, consider looking externally too. There is no benefit in having an uninterested daughter or an incapable son running things. Look for candidates that have strong talents, skills that will complement the business, and a resourceful and enthusiastic approach towards work. If you end up selling or passing on your business to an outsider, you may be able to negotiate a provisional consulting and training period where you remain in the business to ensure a smooth transition.

The sooner a succession plan is put together, the better, but this is by no means an exhaustive list of all the factors you have to consider.

If you are considering exiting your business in the next 5 years, please contact us to discuss your options to ensure a rewarding and successful transition.

]]>With great power comes great responsibility – Directors Responsibilitieshttps://alliedaccountants.com.au/there-is-a-classic-saying-that-goes-with-great-power-comes-great-responsibility-when-it-comes-to-life-in-the-corporate-world-that-famous-old-quote-rings-true-for-company-directors/
Mon, 22 Feb 2016 20:49:47 +0000http://alliedaccountants.com.au/?p=1503There is a classic saying that goes: “With great power comes great responsibility”. When it comes to life in the corporate world, that famous old quote rings true for company directors. Generally speaking, members of a company are commonly referred to as “shareholders”, and they own the company. Directors, on the other hand, are responsible for the management of the company’s business activities. As a director, you hold a high level of power when it comes to making these big decisions on behalf of the...

]]>There is a classic saying that goes: “With great power comes great responsibility”.

When it comes to life in the corporate world, that famous old quote rings true for company directors.

Generally speaking, members of a company are commonly referred to as “shareholders”, and they own the company. Directors, on the other hand, are responsible for the management of the company’s business activities.

As a director, you hold a high level of power when it comes to making these big decisions on behalf of the shareholders and you control the operation and future direction of the company.

The decisions you make can determine the success or failure of the company for which you are a director. People’s jobs and livelihoods are at stake. So too is the capital and cash of investors and shareholders.

So when you reflect on the nature of your role as a company director, you must practice great care, due diligence and responsibility when exercising that power.

There are strict rules, regulations and legal obligations in place to guide your responsibilities as a director.

Whether you’re in a small company with one or two directors, or part of a larger corporation with an entire board of directors, the rules apply regardless of the size of the enterprise.

Each company is a separate legal entity, which means there are certain rules you must follow when dealing with factors such as assets, borrowing money and contracts.

The details of these legal obligations are featured in the Corporations Act 2001, but as a general rule, you must not treat what the company owns (such as assets, funds and property) as if they were your own because those assets and transactions belong to the company, not you personally.

At all times, you must carry out your directorial duties in good faith and in the best interests of the company.

Some of the other most important legal duties for a director include avoiding conflicts between the interests of the company and your personal interests and to exercise due diligence in preventing the company from trading while insolvent.

As a director, you are also expected to ensure the company meets its responsibilities imposed under the Corporations Act 2001.

This includes having a current registered office, having a principal place of business and disclosing personal details of directors, such as the name, date of birth and current residential address of directors.

You must also ensure the company keeps its financial records in order, notifies ASIC of key changes and pays relevant fees to ASIC.

A general rule of thumb is to ensure you are fair, honest and careful in your dealings with the company and with others on its behalf. It is vital to stay informed and up to date with your company’s financial position and its reporting mechanisms, and to get professional advice or information if you are unsure about anything.

While there are always individual circumstances for each company that need to be taken into account should things go wrong, in many cases the debts of the company will remain with the company provided the business has been responsibly managed.

Of course, there are cases where directors have deliberately breached the Corporations Act 2001 and they can become personally liable for the company’s debts or be held responsible in regulatory action.

As with all director’s duties and legal obligations, it is vital to seek professional advice and guidance if you have any in-depth questions or issues to do with your role as a director.